<PAGE>
As filed with the Securities and Exchange Commission on August 2, 1996
Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
Delaware 2384 22-079-0350
State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
345 Park Avenue, New York, New York 10154-0037
(212) 546-4000
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive office)
JOHN L. McGOLDRICK, Esq. Bristol-Myers Squibb Company ALICE C. BRENNAN, Esq.
Senior Vice President 345 Park Avenue Vice President
and General Counsel New York, New York 10154-0037 and Secretary
212) 546-4000
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
Copies of Communications to:
SUSAN WEBSTER, Esq. STEVEN M. SPURLOCK, Esq.
Cravath, Swaine & Moore Gunderson Dettmer Stough Villeneuve
Worldwide Plaza Franklin & Hachigian, LLP
825 Eighth Avenue 600 Hansen Way, Second Floor
New York, New York 10019 Palo Alto, California 94304
---------------
Approximate date of commencement of proposed sale of the securities to the
public: Upon the effective date of the merger described in this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
Proposed Proposed
Amount maximum maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered registered per share offering price(1) registration fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COMMON STOCK, par value $.10
per share and the associated Not
rights...................... 1,039,526 shares Applicable $24,967,000 $8,610
========================================================================================================
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Section 6(b) of the Securities Act of 1933 and Rule 457(f)(2) thereunder
on the basis of the book value of the securities to be received by the
registrant pursuant to the Merger Agreement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
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AXION INC.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
(415) 589-5900
_____________, 1996
Dear Axion Stockholder:
A Special Meeting of Stockholders of Axion Inc. ("Axion") will be held on
________, 1996, at 10:00 a.m., local time, at the offices of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, legal counsel to Axion, located at
600 Hansen Way, Second Floor, Palo Alto, California 94304.
At this Special Meeting, if you are a holder of Axion Preferred Stock, you
will be asked to consider and vote upon a proposal to convert each issued and
outstanding share of Axion Preferred Stock into fully paid and nonassessable
shares of Axion Common Stock at an applicable conversion price (the "Preferred
Stock Proposal"). Furthermore, all of you will be asked to consider and vote
upon a proposal to adopt and approve the Merger (as defined below) and the
Agreement and Plan of Merger, dated as of August 2, 1996 (the "Merger
Agreement"), by and among Axion, Bristol-Myers Squibb Company, a Delaware
corporation ("BMS"), and OTN Acquisition Sub Inc., a Delaware corporation and a
wholly owned subsidiary of BMS ("BMS Sub"), pursuant to which, among other
things:
(i) BMS Sub will merge with and into Axion (the "Merger") and Axion
will become a wholly owned subsidiary of BMS.
(ii) Prior to the Merger, all options to purchase shares of Axion
Common Stock will be exercised or canceled and, if approved, the Preferred
Stock Proposal will be implemented.
(iii) At the Effective Time each issued and outstanding share of Axion
Common Stock (other than any shares of Axion Common Stock owned by Axion or
any subsidiary of Axion or BMS or any wholly owned subsidiary of BMS and
any Dissenting Shares) will be converted into the right to receive, subject
to adjustment as described in the accompanying Proxy Statement/Prospectus,
that number of fully paid and nonassessable shares of BMS Common Stock
equal to the quotient of (a)(i) $86,000,000 divided by (ii) the average of
the per share closing prices of BMS Common Stock as reported on the New
York Stock Exchange Composite Transaction Tape (the "NYSE Tape") for the 10
consecutive full NYSE trading days ending on the fifth full NYSE trading
day immediately preceding the Effective Time (subject to both a minimum
price and a maximum price) divided by (b) the number of shares of Axion
Common Stock outstanding immediately prior to the Effective Time
(calculated on a fully diluted basis assuming that all shares of Axion
Preferred Stock outstanding immediately prior to the Effective Time have
been converted into Axion Common Stock in accordance with the terms of such
Axion Preferred Stock and all options, warrants or other rights to acquire
Axion Common Stock ("Axion Options") outstanding immediately prior to the
Effective Time have been exercised or cancelled and that (except with
respect to Axion Options that have been cancelled) the related subject
shares of Axion Common Stock are outstanding) as provided in the Merger
Agreement.
Notwithstanding the foregoing, $5,000,000 (in the form of BMS Common Stock
received by Axion stockholders in the Merger) will be held and made subject to
an escrow pursuant to an Escrow Agreement, the form of which is attached as
Appendix E to the Proxy Statement/Prospectus. The purpose of such Escrow
Agreement is to secure the indemnity obligations of Axion HealthCare Inc., a
Delaware corporation and a wholly owned subsidiary of Axion ("AHC"), each other
subsidiary of AHC, OnCare and the stockholders of Axion. For more information
regarding
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<PAGE>
the consideration to be received by stockholders of the Company in the Merger,
please refer to the accompanying Proxy Statement/Prospectus under "The
Merger--Terms of the Merger Agreement".
The Retained Business, as defined in the Merger Agreement, constitutes the
only business, assets and liabilities of Axion that BMS has agreed to acquire.
As a result, the disposition of the Retained Business will be effected through a
series of sequential transactions, including the Contributions, the Distribution
and the Merger, all as set forth in the Merger Agreement and the Distribution
Agreement. The purpose of this complex structure is to permit the disposition of
the Retained Business on a tax-free basis to Axion and its stockholders in a
transaction in which Axion stockholders will receive BMS Common Stock and will
also retain their proportionate equity interests in the Acquired Business, as
defined in the Merger Agreement, in the form of AHC Preferred Stock to be
received in the Distribution. Accordingly, a "reverse spinoff" structure was
adopted pursuant to which the Acquired Business will be transferred to AHC and
its subsidiaries and the AHC Preferred Stock will, prior to the Merger, be
distributed to Axion stockholders in the Distribution. In connection with the
Distribution, holders of shares of Axion Common Stock will receive one share of
AHC Preferred Stock with respect to each share of Axion Common Stock held by
such holder as the record date for the Distribution. You are not being asked to
approve the Distribution, which is not subject to stockholder approval. For more
information regarding the Distribution, please refer to the accompanying Proxy
Statement/Prospectus under "The Distribution" and the Information Statement
attached to the Proxy Statement/Prospectus as Appendix G.
The Board of Directors of the Company has approved the Merger, the Merger
Agreement described in the attached materials and the transactions contemplated
thereby, and has determined that the Merger is in the best interests of the
Company and its stockholders. After careful consideration, the Board of
Directors of the Company recommends that the stockholders of the Company vote
FOR adoption and approval of the Merger, the Merger Agreement and the
transactions contemplated thereby, and recommends that the holders of Axion
Preferred Stock vote FOR approval of the Preferred Stock Proposal. The Merger
must be approved by (a) at least a majority of the votes entitled to be cast by
the holders of the outstanding shares of Axion Common Stock and Axion Preferred
Stock voting together as a single class and (b) at least a majority of the votes
entitled to be cast by the holders of the outstanding shares of Axion Preferred
Stock voting together as a single class. It is a condition to the respective
obligations of each party to the Merger Agreement that the Preferred Stock
Proposal be approved by the holders of Axion Preferred Stock. Approval of the
Preferred Stock Proposal requires the affirmative vote of at least sixty-six and
two-thirds percent of the total number of votes entitled to be cast by holders
of Axion Preferred Stock, voting together as single class. If the Merger
Agreement is terminated prior to the Distribution Record Date (as defined in the
Proxy Statement/Prospectus), the conversion of Axion Preferred Stock into Axion
Common Stock as contemplated by the Preferred Stock Proposal will not occur.
Record holders and beneficial owners of (a) approximately 82.6% of the
outstanding shares of Axion Common Stock and Axion Preferred Stock and (b)
approximately 85.2% of the outstanding shares of Axion Preferred Stock have
entered into an agreement pursuant to which each such stockholder has agreed to,
among other things, vote all of its/his shares of such stock in favor of
approval of the Merger, the Merger Agreement and the transactions contemplated
thereby. Accordingly, the Merger can be approved by the affirmative vote of such
persons even if all other Axion stockholders vote against the Merger. Also,
pursuant to such agreement, each holder of Axion Preferred Stock has agreed to
vote all shares of Axion Preferred Stock owned by such stockholder in favor of
converting the Axion Preferred Stock into Axion Common Stock and has granted BMS
an irrevocable proxy to so vote such shares. Accordingly, the Preferred Stock
Proposal can be approved by the affirmative vote of such shares even if all the
other holders of Axion Preferred Stock vote against the Preferred Stock
Proposal. See "The Special Meeting--Vote Required". The Merger is expected to be
consummated promptly after the Special Meeting.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Proxy Statement/Prospectus relating to the actions to
be taken by the Axion stockholders at the Special Meeting, and a
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<PAGE>
proxy card. The Proxy Statement/Prospectus more fully describes the proposed
Merger and includes information about BMS and Axion.
All stockholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy card in the enclosed self-addressed
postage paid envelope. If you attend the Special Meeting, you may vote in person
if you wish, even though you have previously returned your proxy card. It is
important that your shares be represented and voted at the Special Meeting.
Sincerely,
MICHAEL D. GOLDBERG
President and Chief Executive Officer
<PAGE>
<PAGE>
AXION INC.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
(415) 589-5900
-----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on ________________, 1996
-----------------
Notice is hereby given that a Special Meeting of Stockholders of Axion Inc.
("Axion") will be held on _______, 1996, at 10:00 a.m., local time, at the
offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, legal
counsel to Axion, located at 600 Hansen Way, Second Floor, Palo Alto, California
94304, for the following purposes:
(1) For holders of Axion Preferred Stock, to consider and vote upon a
proposal to convert each issued and outstanding share of Axion Preferred Stock
into fully paid and nonassessable shares of Axion Common Stock at an applicable
conversion price (the "Preferred Stock Proposal"); and
(2) For all stockholders, to consider and vote upon a proposal to adopt and
approve the Merger (as defined below) and the Agreement and Plan of Merger,
dated as of August 2, 1996 (the "Merger Agreement"), by and among Axion,
Bristol-Myers Squibb Company, a Delaware corporation ("BMS"), and OTN
Acquisition Sub Inc., a Delaware corporation and wholly owned subsidiary of BMS
("BMS Sub"), pursuant to which, among other things;
(i) BMS Sub will merge with and into Axion (the "Merger") and Axion
will become a wholly owned subsidiary of BMS.
(ii) Prior to the Merger, all options to purchase shares of Axion
Common Stock will be exercised or canceled and, if approved, the Preferred
Stock Proposal will be implemented.
(iii) At the Effective Time each issued and outstanding share of Axion
Common Stock (other than any shares of Axion Common Stock owned by Axion or
any subsidiary of Axion or BMS or any wholly owned subsidiary of BMS and
any Dissenting Shares) will be converted into the right to receive, subject
to adjustment as described in the accompanying Proxy Statement/Prospectus,
that number of fully paid and nonassessable shares of BMS Common Stock
equal to the quotient of (a)(i) $86,000,000 divided by (ii) the average of
the per share closing prices of BMS Common Stock as reported on the New
York Stock Exchange Composite Transaction Tape (the "NYSE Tape") for the 10
consecutive full NYSE trading days ending on the fifth full NYSE trading
day immediately preceding the Effective Time (subject to both a minimum
price and a maximum price) divided by (b) the number of shares of Axion
Common Stock outstanding immediately prior to the Effective Time
(calculated on a fully diluted basis assuming that all shares of Axion
Preferred Stock outstanding immediately prior to the Effective Time have
been converted into Axion Common Stock in accordance with the terms of such
Axion Preferred Stock and all options, warrants or other rights to acquire
Axion Common Stock ("Axion Options") outstanding immediately prior to the
Effective Time have been exercised or cancelled and that (except with
respect to Axion Options that have been cancelled) the related subject
shares of Axion Common Stock are outstanding) as provided in the Merger
Agreement.
Notwithstanding the foregoing, $5,000,000 (in the form of BMS Common Stock
received by Axion stockholders in the Merger) will be held and made subject to
an escrow pursuant to an Escrow Agreement, the form of which is
<PAGE>
<PAGE>
attached as Appendix E to the Proxy Statement/Prospectus. The purpose of such
Escrow Agreement is to secure the indemnity obligations of Axion HealthCare
Inc., a Delaware corporation and a wholly owned subsidiary of Axion ("AHC"),
each other subsidiary of AHC, OnCare and the stockholders of Axion. For more
information regarding the consideration to be received by stockholders of the
Company in the Merger, please refer to the accompanying Proxy
Statement/Prospectus under "The Merger--Terms of the Merger Agreement".
(3) To vote on any other matter that may properly come before the Special
Meeting and at any adjournments or postponements thereof.
In connection with the Merger, Axion intends to affect a distribution (the
"Distribution") whereby the holders of shares of Axion Common Stock will receive
one share of AHC Preferred Stock with respect to each share of Axion Common
Stock held by such holder on the record date for Distribution. Accordingly
stockholders of Axion will retain their proportionate equity interest in AHC in
the form of AHC Preferred Stock. The stockholders are not being asked to approve
the Distribution, which is not subject to stockholder approval. For more
information regarding the Distribution, please refer to the accompanying Proxy
Statement/Prospectus under "The Distribution" and the Information Statement
attached to the Proxy Statement/Prospectus as Appendix G.
The Board of Directors of the Company has approved the Merger, the Merger
Agreement described in the attached materials and the transactions contemplated
thereby, and has determined that the Merger is in the best interests of the
Company and its stockholders. After careful consideration, the Board of
Directors of the Company recommends that the stockholders of the Company vote
FOR adoption and approval of the Merger, the Merger Agreement and the
transactions contemplated thereby, and recommends that the holders of Axion
Preferred Stock vote FOR approval of the Preferred Stock Proposal. The Merger
must be approved by (a) at least a majority of the votes entitled to be cast by
the holders of the outstanding shares of Axion Common Stock and Axion Preferred
Stock voting together as a single class and (b) at least a majority of the votes
entitled to be cast by the holders of the outstanding shares of Axion Preferred
Stock voting together as a single class. It is a condition to the respective
obligations of each party to the Merger Agreement that the Preferred Stock
Proposal be approved by the holders of Axion Preferred Stock. Approval of the
Preferred Stock Proposal requires the affirmative vote of at least sixty-six and
two-thirds percent of the total number of votes entitled to be cast by holders
of Axion Preferred Stock, voting together as single class. If the Merger
Agreement is terminated prior to the Distribution Record Date (as defined in the
Proxy Statement/Prospectus), the conversion of Axion Preferred Stock into Axion
Common Stock as contemplated by the Preferred Stock Proposal will not occur.
Record holders and beneficial owners of (a) approximately __% of the outstanding
shares of Axion Common Stock and Axion Preferred Stock and (b) approximately __%
of the outstanding shares of Axion Preferred Stock have entered into an
agreement pursuant to which each such stockholder has agreed to, among other
things, vote all of its/his shares of such stock in favor of approval of the
Merger, the Merger Agreement and the transactions contemplated thereby.
Accordingly, the Merger can be approved by the affirmative vote of such persons
even if all other Axion stockholders vote against the Merger. Also, pursuant to
such agreement, each holder of Axion Preferred Stock has agreed to vote all
shares of Axion Preferred Stock owned by such stockholder in favor of converting
the Axion Preferred Stock into Axion Common Stock and has granted BMS an
irrevocable proxy to so vote such shares. Accordingly, the Preferred Stock
Proposal can be approved by the affirmative vote of such shares even if all the
other holders of Axion Preferred Stock vote against the Preferred Stock
Proposal. See "The Special Meeting--Vote Required". The Merger is expected to be
consummated promptly after the Special Meeting.
A complete list of the stockholders entitled to vote at the Special Meeting
will be available during the 10 days prior to the Special Meeting at Axion's
principal executive officers located at 1111 Bayhill Drive, Suite 125, San
Bruno, California 94066 for examination by any stockholder and will also be
available for inspection at the Special Meeting. Holders of shares of Axion
Preferred Stock and Axion Common Stock will be entitled to dissenters' rights
2
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<PAGE>
in connection with the Merger as provided in the Merger Agreement and as more
fully described in the accompanying Proxy Statement/Prospectus.
The accompanying Proxy Statement/Prospectus describes in detail the
proposed Merger, the Merger Agreement and the transactions contemplated thereby.
Such Proxy Statement/Prospectus and the Appendices thereto (including the Merger
Agreement and the Distribution Agreement attached as Appendix A and Appendix B
thereto, respectively) form a part of this Notice. The proposed Merger is of
great importance to Axion and it stockholders. Please read the Proxy
Statement/Prospectus carefully and then complete, sign and date the enclosed
proxy card, and return it promptly in the enclosed self-addressed postage paid
envelope.
- --------------------------------------------------------------------------------
IMPORTANT
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. WHETHER
OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND ESCROW AGREEMENT, AND RETURN THEM AS SOON
AS POSSIBLE IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO ADDITIONAL POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY THEN
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
- --------------------------------------------------------------------------------
BY ORDER OF THE BOARD OF DIRECTORS,
MICHAEL D. GOLDBERG
President and Chief Executive Officer
3
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SUBJECT TO COMPLETION, DATED AUGUST 2, 1996
AXION INC.
PROXY STATEMENT
-------------------------
BRISTOL-MYERS SQUIBB COMPANY
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the stockholders of
Axion Inc., a Delaware corporation ("Axion"), in connection with the
solicitation of proxies by the Board of Directors of Axion (the "Axion Board")
from holders of outstanding shares of common stock, par value $.001 per share,
of Axion (the "Axion Common Stock") and holders of outstanding shares of each
series of preferred stock, par value $.001 per share, of Axion (the "Axion
Preferred Stock"), for use at the Special Meeting of Stockholders of Axion to be
held on , 1996, and at any adjournments or postponements thereof (the "Special
Meeting").
At the Special Meeting, (i) stockholders of Axion will be asked to consider
and vote upon a proposal (the "Merger Proposal") to approve and adopt the
Agreement and Plan of Merger, dated as of August 2, 1996, among Bristol-Myers
Squibb Company, a Delaware corporation ("BMS"), OTN Acquisition Sub Inc., a
Delaware corporation and a wholly owned subsidiary of BMS ("BMS Sub"), and
Axion, which is attached as Appendix A to this Proxy Statement/Prospectus and is
incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Merger Agreement") and the
transactions contemplated by the Merger Agreement, including the Merger (as
defined herein), and (ii) holders of Axion Preferred Stock will be asked to
consider and vote upon a proposal (the "Preferred Stock Proposal") to convert,
immediately prior to the Distribution Record Date (as defined herein), each
issued and outstanding share of Axion Preferred Stock into one fully paid and
nonassessable share of Axion Common Stock. The Merger Agreement provides,
subject to the satisfaction or waiver of certain conditions, that (i) Axion will
effect the distribution (the "Distribution") as contemplated by the Agreement
and Plan of Reorganization and Distribution to be entered into among Axion,
Axion HealthCare Inc., a Delaware corporation and a wholly owned subsidiary of
Axion ("AHC"), OPUS Health Systems Inc., a Delaware corporation and a wholly
owned subsidiary of Axion ("OPUS"), Oncology Therapeutics Network Corporation, a
Delaware corporation and a wholly owned subsidiary of Axion ("OTNC"), OPUS Sub,
a Delaware corporation to be formed as a wholly owned subsidiary of OPUS ("OPUS
Sub"), and Oncology Therapeutics Network Joint Venture, L.P., a Delaware limited
partnership ("OTN" or the "Partnership"), the form of which is attached as
Appendix B to this Proxy Statement/Prospectus and is incorporated herein by
reference (as it may be amended, supplemented or otherwise modified from time to
time, the "Distribution Agreement") pursuant to which Axion will distribute to
the holders of Axion Common Stock on a pro rata basis all the then outstanding
shares of preferred stock, par value $.001, of AHC (the "AHC Preferred Stock")
and (ii) BMS Sub will immediately thereafter be merged with and into Axion (the
"Merger"), with Axion surviving the Merger (sometimes hereinafter referred to as
the "Surviving Corporation"). At the time the Merger becomes effective (the
"Effective Time"), each share of Axion Common Stock outstanding immediately
prior to the Effective Time (other than any shares of Axion Common Stock owned
by Axion or any subsidiary of Axion or BMS or any subsidiary of BMS and any
Dissenting Shares (as defined herein)) will be converted into the right to
receive the number (the "Conversion Number") of fully paid and nonassessable
shares of common stock, par value $.10 per share, of BMS together with the
associated rights (the "BMS Rights") pursuant to the Rights Agreement dated as
of December 4, 1987 (as amended, the "Rights Agreement") between BMS and The
Chase Manhattan Bank, as Rights Agent (collectively, "BMS Common Stock"), equal
to the quotient of (a)(i) $86,000,000 divided by (ii) the Average Value of BMS
Common Stock (as defined herein) divided by (b) the number of shares of Axion
Common Stock outstanding immediately prior to the Effective Time (calculated on
a fully diluted basis assuming that each share of Axion Preferred Stock
outstanding immediately prior to the Effective Time has been converted in
accordance with its terms into one share of Axion Common Stock and that all
options, warrants or other rights to acquire Axion Common Stock ("Axion
Options") outstanding immediately prior to the Effective Time have been
exercised or canceled and the related subject shares (other than with respect to
canceled Axion Options) of Axion Common Stock are outstanding (collectively, the
"Diluted Share Assumption")). In the event that as of the closing date of the
Merger (the "Closing Date") the Average Value of BMS Common Stock is less than
$82.73 (the "Minimum Price"), then the Average Value of BMS Common Stock will be
deemed to be an amount equal to the Minimum Price, and in the event that as of
the Closing Date the Average Value of BMS Common Stock is greater than $91.43
(the "Maximum Price"), then the Average Value of BMS Common Stock will be deemed
to be an amount equal to the Maximum Price, in each case subject to certain
adjustments for dividends.
1
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<PAGE>
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options (as defined herein), resulting in
an aggregate of 9,977,756 shares of Axion Common Stock outstanding), and
assuming an Average Value of BMS Common Stock equal to $87.08 (the average per
share closing price of BMS Common Stock for the 10 full NYSE trading days ending
on the first full NYSE trading day immediately preceding the date hereof), the
Conversion Number would be 0.099 and the aggregate market value of BMS Common
Stock to be received by holders of Axion Common Stock in the Merger would be
approximately $86 million, or approximately $8.62 per share of Axion Common
Stock. However, the Average Value of BMS Common Stock is determined as of five
full NYSE trading days immediately preceding the Effective Time and the market
value of BMS Common Stock may then be less than the Minimum Price (or greater
than the Maximum Price) and the number of issued and outstanding shares of Axion
Common Stock is determined as of immediately prior to the Effective Time.
Therefore there can be no assurance that these assumptions will be true as of
the Effective Time, and the Conversion Number may be substantially less or
greater than 0.099, and the aggregate market value of BMS Common Stock to be
received by holders of Axion Common Stock in the Merger may be substantially
less or greater than $86 million, or approximately $8.62 per share. Under the
terms of the Merger Agreement, Axion does not have the right to decline to
consummate the Merger solely because the market value of BMS Common Stock
immediately prior to the Effective Time is substantially less than the Minimum
Price. See "The Merger--Terms of the Merger--Conversion of Axion Common Stock in
the Merger" and "--Conditions--Conditions to Obligations of Axion".
Pursuant to certain escrow and indemnification agreements, immediately
following the Effective Time of the Merger Axion stockholders will be required
to place $5,000,000 (in the form of BMS Common Stock received by Axion
stockholders in the Merger (the "Escrowed Shares")) and AHC will be required to
place $5,000,000 in cash (the "Escrowed Cash") in an escrow account to secure
certain obligations of such stockholders and AHC and its subsidiaries to
indemnify BMS and its subsidiaries. There can be no assurance as to whether all
or any portion of such Escrowed Shares will eventually be released to such
stockholders or as to whether all or any portion of such Escrowed Cash will
eventually be released to AHC. See "The Distribution--Terms of the
Indemnification Agreement", "--Terms of the Tax Matters Agreement" and "--Terms
of the Escrow Agreement".
This Proxy Statement/Prospectus is first being mailed to Axion stockholders
on or about [_________], 1996.
This Proxy Statement/Prospectus also constitutes the Prospectus of BMS
under the Securities Act of 1933 (the "Securities Act") for the public offering
of up to 1,039,526 shares of BMS Common Stock to be received by Axion
stockholders in the Merger. This Proxy Statement/Prospectus does not cover
resales of such stock, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale.
-------------------
SEE "RISK FACTORS" COMMENCING ON PAGE __ OF THIS PROXY STATEMENT/PROSPECTUS FOR
A DISCUSSION OF CERTAIN RISKS RELEVANT TO THE MERGER AND RELATED TRANSACTIONS
WHICH SHOULD BE CONSIDERED CAREFULLY BY AXION STOCKHOLDERS IN EVALUATING THE
MERGER PROPOSAL, THE PREFERRED STOCK PROPOSAL (IF APPLICABLE) AND THE
ACQUISITION OF SECURITIES OFFERED HEREBY.
-------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Proxy Statement/Prospectus is _____________, 1996
2
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AVAILABLE INFORMATION
BMS is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and other
information filed by BMS with the Commission can be inspected and copied at the
Commission's public reference room located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the public reference facilities in the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
at prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may also be obtained from the World Wide Web site maintained by the Commission
(http://www.sec.gov). In addition, reports, proxy statements and other
information concerning BMS may be inspected at the offices of the New York Stock
Exchange, Inc., (the "NYSE") 20 Broad Street, New York, New York 10005 and The
Pacific Stock Exchange, Incorporated (the "PSE"), 301 Pine Street, San
Francisco, California 94104.
BMS has filed a Registration Statement on Form S-4 (including exhibits and
amendments thereto, the "BMS Registration Statement" or the "Form S-4") pursuant
to the Securities Act covering shares of BMS Common Stock issuable in the
Merger. This Proxy Statement/Prospectus constitutes both the Proxy Statement of
Axion relating to the solicitation of proxies for use at the Special Meeting and
the Prospectus of BMS filed as part of the BMS Registration Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the BMS Registration Statement covering the securities offered hereby,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which portions reference is hereby made
for further information with respect to BMS and the securities offered hereby.
Statements contained herein concerning any documents which are filed as exhibits
to the BMS Registration Statement are not necessarily complete and, in each
instance, reference is made to the copies of such documents filed as such
exhibits. Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by BMS (File No. 1-1136)
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "BMS Form 10-K"), (b) Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1996, (c) the information
contained in BMS's Proxy Statement (the "1996 BMS Proxy Statement") dated March
18, 1996 for its Annual Meeting of Shareholders held on May 7, 1996 that has
been incorporated by reference in the BMS Form 10-K, (d) Registration Statement
on Form S-8 dated April 26, 1996 and the Amendment thereto dated May 2, 1996,
(e) the description of BMS Common Stock set forth in Registration Statements
filed pursuant to Section 12 of the Exchange Act and any amendment or report
filed for the purpose of updating any such description, and (f) the description
of the BMS Rights contained in the Registration Statement on Form 8-A dated
December 10, 1987 and the Form 8 dated July 27, 1989.
All documents filed by BMS pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date hereof and prior to the Special Meeting
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of such filing. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes hereof to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated herein by reference modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
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All information contained in this Proxy Statement/Prospectus relating to
Axion, AHC, OTNC, OTN, OPUS, OPUS Sub, OnCare Inc. ("OnCare") and their
respective affiliates (other than BMS) and subsidiaries has been supplied by
Axion, and all information relating to BMS, BMS Sub and their respective
affiliates and subsidiaries (other than OTN) has been supplied by BMS.
Oncology Therapeutics Network(R), Axion(R) and the Axion logo are
registered trademarks of Axion, and Axion HealthCare(TM), OnCare Practice
Utilization System(TM), OPUS(TM) and OPUS Health Systems(TM) are trademarks of
Axion. All other trademarks or trade names referred to in this Prospectus are
the property of their respective owners.
No dealer, salesperson or other person is authorized to give any
information or to make any representation on behalf of Axion or BMS concerning
the matters being considered at the Special Meeting if not contained in or
appended to this Proxy Statement/Prospectus, and, if given or made, such
information or representation should not be relied upon as having been
authorized. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, the securities offered by this
Proxy Statement/Prospectus or the solicitation of a proxy, by any person in any
jurisdiction in which such an offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so or
to any person to whom it is unlawful to make such an offer or solicitation.
Neither delivery of this Proxy Statement/Prospectus nor any distribution of the
securities being offered pursuant to this Proxy Statement/Prospectus shall,
under any circumstances, create an implication that there has been no change in
the affairs of Axion or BMS since the date of this Proxy Statement/Prospectus.
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TABLE OF CONTENTS
AVAILABLE INFORMATION ..................................................... 3
INCORPORATION OF CERTAIN INFORMATION
BY REFERENCE ............................................................ 3
SUMMARY ................................................................... 6
The Companies ............................................................. 6
The Transactions .......................................................... 7
Relationship with BMS ..................................................... 13
Recommendation of the Axion Board ......................................... 13
The Special Meeting ....................................................... 13
Stockholder Agreement ..................................................... 14
Certain Federal Income Tax Consequences ................................... 15
Dissenters' Rights ........................................................ 15
Certain Regulatory Approvals .............................................. 16
Interests of Certain Persons in the Transactions .......................... 16
Comparison of Certain Rights of Holders of BMS Common Stock
and Axion Common Stock .................................................. 16
Risk Factors .............................................................. 16
Market Price and Dividend Data ............................................ 17
Comparative Per Share Data ................................................ 18
Selected Historical Financial Information ................................. 19
RISK FACTORS .............................................................. 22
THE SPECIAL MEETING ....................................................... 24
General ................................................................... 24
Time, Place and Date ...................................................... 24
Record Date ............................................................... 24
Vote Required ............................................................. 24
Voting and Revocation of Proxies .......................................... 25
Solicitation of Proxies ................................................... 26
Dissenters' Rights ........................................................ 26
THE TRANSACTIONS .......................................................... 27
THE COMPANIES ............................................................. 31
Axion ..................................................................... 31
BMS ....................................................................... 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF AXION .................................................. 35
THE MERGER ................................................................ 39
Background and Reasons for the Merger; Recommendation of
the Axion Board ......................................................... 39
BMS's Reason for the Merger ............................................... 40
Terms of the Merger ....................................................... 40
Effective Time; Closing ................................................... 43
Exchange of Certificates in the Merger .................................... 43
Indemnification Matters; Escrow; Appointment of
AHC as Representative ................................................... 44
Representations and Warranties ............................................ 44
Covenants ................................................................. 45
Certain Regulatory Approvals .............................................. 49
Stock Exchange Listing .................................................... 50
Conditions ................................................................ 50
Termination; Amendment and Waiver ......................................... 55
Expenses .................................................................. 55
Accounting Treatment ...................................................... 56
Interests of Certain Persons in the Transactions .......................... 56
Resales of BMS Common Stock Issued in the Merger;
Affiliates .............................................................. 57
Dissenters' Rights ........................................................ 57
THE DISTRIBUTION .......................................................... 60
Reasons for the Distribution .............................................. 60
Terms of the Distribution Agreement ....................................... 61
Terms of the Indemnification Agreement .................................... 64
Terms of the Tax Matters Agreement ........................................ 67
Terms of the Escrow Agreement ............................................. 68
EFFECT OF TRANSACTIONS ON AXION
EMPLOYEES AND AXION BENEFIT PLANS ....................................... 74
Transfer of Employment .................................................... 74
OTNC Employment Agreements ................................................ 74
Transfer of Plans ......................................................... 76
Retained Plans ............................................................ 77
Severance Arrangements .................................................... 78
RELATIONSHIP WITH BMS ..................................................... 78
Indemnification Agreement; Escrow Agreement;
Tax Matters Agreement ................................................... 78
License Agreement ......................................................... 79
Transitional Services Agreement ........................................... 79
AHC Supply Agreement; OnCare Supply Agreement;
AHC Medstation Agreement; OnCare Medstation
Agreement ............................................................... 79
Noncompetition Agreements ................................................. 79
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 79
DESCRIPTION OF CAPITAL STOCK OF BMS ....................................... 82
General ................................................................... 82
Common Stock .............................................................. 83
BMS Convertible Preferred ................................................. 83
BMS Rights ................................................................ 84
COMPARISON OF CERTAIN RIGHTS OF HOLDERS
OF BMS COMMON STOCK AND AXION
COMMON STOCK ............................................................ 85
Certain Business Combinations ............................................. 85
Removal of Directors ...................................................... 86
Vacancies on the Board of Directors ....................................... 86
Amendments to the Certificate of Incorporation ............................ 87
Amendments to Bylaws ...................................................... 87
Special Meetings of Stockholders; Action by Written .......................
Consent ................................................................. 87
Indemnification of Officers and Directors ................................. 88
No Cumulative Voting ...................................................... 88
Size and Classification of the Board of Directors ......................... 89
EXPERTS ................................................................... 89
VALIDITY OF BMS SHARES .................................................... 89
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF AXION .......................................... 90
STOCKHOLDER PROPOSALS ..................................................... 93
INDEX OF DEFINED TERMS .................................................... 94
INDEX TO FINANCIAL STATEMENTS OF
AXION INC ............................................................... F-1
Appendix A Agreement and Plan of Merger
Appendix B Agreement and Plan of Reorganization and
Distribution
Appendix C Post-Closing Covenants and Indemnification
Agreement
Appendix D Tax Matters Agreement
Appendix E Escrow Agreement
Appendix F Section 262 of Delaware General Corporation Law
Appendix G Information Statement Relating to Axion HealthCare Inc.
and the Distribution
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SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information included elsewhere in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference. Stockholders are urged to read carefully this Proxy
Statement/Prospectus, including the Appendices hereto and the documents
incorporated herein by reference in their entirety.
All information concerning Axion, AHC, OnCare, OTNC, OTN, OPUS, OPUS Sub
and their respective affiliates and subsidiaries (other than BMS) included in
this Proxy Statement/Prospectus and the Appendices hereto has been furnished by
Axion, and all information concerning BMS, BMS Sub and their respective
affiliates and subsidiaries (other than OTN) included in this Proxy
Statement/Prospectus, the Appendices hereto and the documents incorporated
herein by reference has been furnished by BMS. An Index of Defined Terms used
herein is included at page [ ] of this Proxy Statement/Prospectus.
The Companies
Axion
Axion was incorporated under the laws of the State of Delaware on July 30,
1987. Axion is a holding company with three direct wholly owned subsidiaries,
OTNC, AHC and OPUS. OTNC is the general partner of the Partnership, which
distributes oncology drugs and related supplies to office-based oncologists.
Bristol-Myers Oncology Therapeutic Network, Inc., a Delaware corporation and a
wholly owned subsidiary of BMS ("BMOTN"), is a limited partner. AHC provides
cancer-specific managed care services to cancer care payers and providers (the
"AHC Business"). OPUS consists of the OPUS Station Business, which furnishes
automated drug dispensing and inventory tracking systems to office-based
oncology practices, and the OPUS Matrix Business (the OPUS Matrix Business),
which consists of computer software which provides office-based oncology
practices with access to drug and treatment information and the management
information system to support Axion's businesses.
Axion is also the beneficial owner of 2,700,000 shares of Series A
Redeemable Preferred Stock of OnCare (the "OnCare Preferred Stock"). OnCare was
formerly a majority owned subsidiary of Axion. In December 1995, Axion
distributed to holders of Axion Common Stock, holders of Axion Options and
holders of Axion Preferred Stock all its holdings of shares of common stock of
OnCare. OnCare is an oncology physician practice management company.
As a result of the distribution of the Preference Amount (as defined
herein), the Contributions (as defined herein) and the Distribution, OTNC,
including its interest in the Partnership, and the OPUS Station Business,
including the assets and certain of the liabilities relating thereto
(collectively, the "Retained Business"), will constitute all the businesses,
assets and liabilities of Axion at the Effective Time. Immediately prior to the
time at which the Distribution is effected (the "Time of Distribution"), all of
Axion's other businesses, assets and liabilities, which include the AHC
Business, the OPUS Matrix Business, the OnCare Preferred Stock and the
Preference Amount (net of the Retained Cash (as defined herein)) will be held by
AHC.
At March 31, 1996, Axion and its consolidated subsidiaries had total assets
of approximately $144.8 million and stockholders' equity of approximately $25.0
million, and the Retained Business had total assets of approximately $144.3
million, or approximately 99.7% of Axion's consolidated total assets, and
stockholders' equity of $25.2 million. For the three months ended March 31,
1996, and the year ended December 31, 1995, the Retained Business accounted for
approximately $60.4 million, or approximately 99.9%, and $195.3 million, or
approximately 98.2%, respectively, of Axion's consolidated net revenues.
Axion's principal executive offices are located at 1111 Bayhill Drive,
Suite 125, San Bruno, California 94066, and its telephone number at such offices
is (415) 589-5900.
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BMS
BMS was incorporated under the laws of the State of Delaware in August 1933
under the name Bristol-Myers Company as successor to a New York business started
in 1887. In 1989, the Bristol-Myers Company changed its name to Bristol-Myers
Squibb Company, as a result of a merger. BMS, through its divisions and
subsidiaries, is a major producer and distributor of pharmaceutical products,
medical devices, nonprescription health products, toiletries and beauty aids. At
March 31, 1996 BMS had total assets of approximately $13,824 million and
stockholders' equity of approximately $5,936 million.
BMS's principal executive offices are located at 345 Park Avenue, New York,
New York 10154-0037 and its telephone number at such offices is (212) 546-4000.
Additional Information
To obtain additional information regarding the businesses of BMS and the
Retained Business, see "Available Information", "Incorporation of Certain
Information by Reference" and "The Companies". For information regarding AHC,
see the Information Statement (the "Information Statement") attached as Appendix
G hereto.
The Transactions
Pursuant to the transactions described in this Proxy Statement/Prospectus,
BMS will acquire the Retained Business, which consists of (i) OTNC, including
its 50% interest in the Partnership, and (ii) the OPUS Station Business,
including in each case the assets and certain of the liabilities related
thereto.
The proposals to be submitted to Axion stockholders at the Special Meeting
relate to the acquisition by BMS from Axion of the Retained Business. Such
acquisition will be effected pursuant to the Merger, whereby BMS Sub will be
merged with and into Axion and Axion stockholders will receive shares of BMS
Common Stock in exchange for their shares of Axion Common Stock. Immediately
prior to the Merger, (i) the Partnership will distribute to OTNC, and OTNC will
distribute to Axion, an amount in cash equal to $13,615,147 (the "Preference
Amount"), (ii) each issued and outstanding share of Axion Preferred Stock will
be converted into one fully paid and nonassessable share of Axion Common Stock,
and all Axion Options will be exercised (other than the Goldberg $10.00 Options,
which will not be exercised and will be canceled), (iii) OPUS will contribute
the OPUS Matrix Business to OPUS Sub, (iv) OPUS will distribute the stock of
OPUS Sub to Axion, (v) Axion will contribute the stock of OPUS Sub and certain
other assets and liabilities of Axion and its subsidiaries, including the OnCare
Preferred Stock, the Employee Loan (as defined below) and an amount in cash
equal to the Preference Amount (net of Retained Cash) (such stock, cash and
other assets and liabilities, the "Acquired Business"), to AHC and (vi) Axion
will distribute to each of its stockholders in the Distribution one share of AHC
Preferred Stock in respect of each share of Axion Common Stock held by such
stockholder on the Distribution Record Date. See "The Distribution".
Accordingly, Axion stockholders will retain their proportionate equity interests
in the Acquired Business, including the AHC Business and the OPUS Matrix
Business, in the form of AHC Preferred Stock to be received in the Distribution.
See "Description of Capital Stock of AHC" in the Information Statement attached
as Appendix G hereto.
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The Merger
General. If the Merger Agreement is approved and adopted by the Axion
stockholders and the other conditions to the Merger are satisfied or waived, at
the Effective Time BMS Sub will be merged with and into Axion (which will then
hold only the Retained Business) with Axion as the Surviving Corporation, and
the separate existence of BMS Sub will cease.
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of Axion Common Stock (other than any shares of Axion Common
Stock owned by Axion or any subsidiary of Axion or BMS or any wholly owned
subsidiary of BMS and any Dissenting Shares) will be converted into the right to
receive the Conversion Number of fully paid and nonassessable shares of BMS
Common Stock (the "Merger Consideration"). The "Conversion Number" will be equal
to the quotient of (a)(i) $86,000,000 divided by (ii) the Average Value of BMS
Common Stock divided by (b) the number of shares of Axion Common Stock
outstanding immediately prior to the Effective Time (calculated on a fully
diluted basis assuming that each share of Axion Preferred Stock outstanding
immediately prior to the Effective Time has been converted in accordance with
its terms into one share of Axion Common Stock and all options, warrants or
other rights to acquire Axion Common Stock ("Axion Options") outstanding
immediately prior to the Effective Time have been exercised or canceled and that
(other than with respect to canceled Axion Options) the related subject shares
of Axion Common Stock are outstanding (collectively, the "Diluted Share
Assumption")). The term "Average Value of BMS Common Stock" means an amount
equal to the average of the per share closing prices of BMS Common Stock as
reported on the New York Stock Exchange Composite Transaction Tape (the "NYSE
Tape") for the 10 consecutive full NYSE trading days ending on the fifth full
NYSE trading day immediately preceding the Effective Time; provided that (A) if
the Board of Directors of BMS (the "BMS Board") declares a cash dividend on the
outstanding shares of BMS Common Stock having a record date after the Effective
Time but an ex-dividend date (based on "regular way" trading on the NYSE of
shares of BMS Common Stock, the "Ex-Date") that occurs during the averaging
period, then for purposes of computing the Average Value of BMS Common Stock,
the closing price on the Ex-Date and any trading day in the averaging period
after the Ex-Date will be adjusted by adding thereto the amount of such dividend
and (B) if the BMS Board declares a cash dividend on the outstanding shares of
BMS Common Stock having a record date before the Effective Time and an Ex-Date
that occurs during the averaging period, then for purposes of computing the
Average Value of BMS Common Stock, the closing price on any trading day before
the Ex-Date will be adjusted by subtracting therefrom the amount of such
dividend. Notwithstanding anything to the contrary contained in the Merger
Agreement, in the event that as of the closing date of the Merger (the "Closing
Date") the Average Value of BMS Common Stock is less than $82.73 (an amount
equal to 95 percent of the daily average per share closing price of BMS Common
Stock as reported on the NYSE Tape for the 10 full NYSE trading days immediately
prior to the date of the Merger Agreement) (the "Minimum Price"), then solely
for the purposes of calculating the Merger Consideration, the Average Value of
BMS Common Stock will be deemed to be an amount equal to the Minimum Price, and
in the event that as of the Closing Date the Average Value of BMS Common Stock
is greater than $91.43 (an amount equal to 105 percent of the daily average per
share closing price of BMS Common Stock as reported on the NYSE Tape for the 10
full NYSE trading days immediately prior to the date of the Merger Agreement)
(the "Maximum Price"), then solely for the purposes of calculating the Merger
Consideration, the Average Value of BMS Common Stock will be deemed to be the
Maximum Price. If prior to the Effective Time, the BMS Board declares a stock
split, stock combination, stock dividend or other non-cash distribution on the
outstanding shares of BMS Common Stock, then the Minimum Price and Maximum Price
(and, if the Ex-Date for such event occurs during the averaging period, the
Average Value of BMS Common Stock) will be appropriately adjusted to reflect
such split, combination, dividend or other distribution.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options, resulting in an aggregate of
9,977,756 shares of Axion Common Stock outstanding), and assuming an Average
Value of BMS Common Stock equal to $87.08 (the average per share closing price
of BMS Common Stock for the 10 full NYSE trading days ending on the first full
NYSE trading day immediately preceding the date
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hereof), the Conversion Number would be 0.099 and the aggregate market value of
BMS Common Stock to be received by holders of Axion Common Stock in the Merger
would be approximately $86 million, or approximately $8.62 per share of Axion
Common Stock. However, the Average Value of BMS Common Stock is determined as of
five full NYSE trading days immediately preceding the Effective Time, at which
time the market value of BMS Common Stock may be less than the Minimum Price (or
greater than the Maximum Price), and the number of issued and outstanding shares
of Axion Common Stock is determined as of immediately prior to the Effective
Time (which date will be after the date of the Special Meeting). Therefore there
can be no assurance that these assumptions will be true as of the Effective
Time, and the Conversion Number may be substantially less or greater than 0.099,
and the aggregate market value of BMS Common Stock to be received by holders of
Axion Common Stock in the Merger may be substantially less or greater than $86
million, or approximately $8.62 per share. Under the terms of the Merger
Agreement, Axion does not have the right to decline to consummate the Merger
solely because the market value of BMS Common Stock immediately prior to the
Effective Time is substantially less than the Minimum Price. Therefore, if the
Merger is authorized and all other conditions to the Merger are satisfied or
waived on or prior to the Effective Time, Axion stockholders will assume the
risk of a decline in the market value of BMS Common Stock below the Minimum
Price after the date of the Special Meeting. See "The Merger--Terms of the
Merger--Conversion of Axion Common Stock in the Merger" and
"--Conditions--Conditions to Obligation of Axion".
As of the Record Date, 1,606,651 shares of Axion Common Stock were
outstanding and 8,471,105 shares of Axion Common Stock were issuable upon
conversion of the Axion Preferred Stock and the exercise of Axion Options. The
approval of the Preferred Stock Proposal by holders of Axion Preferred Stock,
the conversion of each issued and outstanding share of Axion Preferred Stock
into one fully paid and nonassessable share of Axion Common Stock and the
exercise or cancelation of all Axion Options, in each case prior to the
Effective Time, are each conditions to the Merger. Michael D. Goldberg, the
President and Chief Executive Officer of Axion, has advised Axion that he does
not intend to exercise his options to purchase 100,000 shares of Axion Common
Stock at a price of $10.00 per share (the "Goldberg $10.00 Options").
Accordingly, the Goldberg $10.00 Options will be canceled prior to the Effective
Time, and assuming the conversion of each issued and outstanding share of Axion
Preferred Stock and the exercise of all Axion Options other than the Goldberg
$10.00 Options, it is anticipated that there will be approximately 9,977,756
shares of Axion Common Stock issued and outstanding on the Closing Date.
Pursuant to certain indemnification, tax matters and escrow agreements,
immediately following the Effective Time of the Merger Axion stockholders will
be required to place $5,000,000 (in the form of BMS Common Stock received by
Axion stockholders in the Merger (the "Escrowed Shares")) and AHC will be
required to place $5,000,000 in cash (the "Escrowed Cash") in an escrow account
to secure certain obligations of such stockholders and AHC and its subsidiaries
to indemnify BMS and its subsidiaries. There can be no assurance as to whether
all or any portion of such Escrowed Shares will be released to such stockholders
or as to whether all or any portion of such Escrowed Cash will be released to
AHC. There can be no assurance that the failure to obtain the release of all or
a portion of such Escrowed Cash will not have a material adverse effect on AHC.
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of the
Tax Matters Agreement" and "--Terms of the Escrow Agreement".
Fractional Shares. No fractional shares of BMS Common Stock will be issued
in the Merger. The Merger Agreement provides that each Axion stockholder who
otherwise would have been entitled to receive a fraction of a share of BMS
Common Stock will receive, in lieu thereof, cash (without interest) in an
amount, less the amount of any withholding taxes which may be required therein
equal to such a fractional part of a share of BMS Common Stock multiplied by the
per share closing price of BMS Common Stock as reported on the NYSE Tape on the
full NYSE trading day immediately preceding the Closing Date.
Effective Time; Closing. The Merger will become effective and the Effective
Time will occur immediately upon the filing of a certificate of merger (the
"Certificate of Merger") with the Delaware Secretary of State or at such time
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thereafter as is provided in the Certificate of Merger. The Merger Agreement
provides that the closing (the "Closing") of the Merger will take place on a
date to be specified by the parties which date will be no later than the first
business day after satisfaction of the conditions to the Merger Agreement,
unless another date is agreed to in writing by BMS, BMS Sub and Axion. See "The
Merger--Effective Time; Closing".
Distribution of Merger Consideration; Exchange of Share Certificates. At or
immediately after the Closing Date, BMS will send each stockholder of Axion
immediately prior to the Effective Time (a "Former Axion Stockholder") a letter
(the "Letter of Transmittal") notifying such stockholder of the consummation of
the Merger and setting forth instructions for the surrender of certificates (the
"Certificates") that before the Effective Time represented Axion Common Stock.
Promptly after receipt by BMS's exchange agent (the "Exchange Agent") of any
Certificates surrendered in accordance with the instructions set forth in the
Letter of Transmittal, the Exchange Agent will distribute to the Former Axion
Stockholder entitled thereto the certificates representing whole shares of BMS
Common Stock and a check in lieu of fractional shares of BMS Common Stock into
which the shares of Axion Common Stock represented by the surrendered
Certificates were converted in the Merger. The new certificates shall not
include the number of Escrowed Shares deemed to have been placed in escrow by
such Former Axion Stockholder. AXION STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER
THEIR CERTIFICATES REPRESENTING OUTSTANDING SHARES OF AXION COMMON STOCK FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM BMS. See "The
Merger--Exchange of Certificates in the Merger". Execution and delivery of the
Letter of Transmittal by each Former Axion Stockholder will result in each such
Former Axion Stockholder becoming a party to and bound by the Indemnification
Agreement, Tax Matters Agreement and Escrow Agreement (each as defined herein)
and will result in the irrevocable appointment of AHC as each such Former Axion
Stockholder's agent with respect to all matters arising under such agreements.
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of the
Tax Matters Agreement" and "--Terms of the Escrow Agreement". These agreements
will, among other things, subject each such Former Axion Stockholder as well as
AHC and its subsidiaries to certain indemnity obligations to BMS and its
subsidiaries and provide for the Escrowed Shares and the Escrowed Cash to be
placed in escrow to secure these obligations. See "Risk Factors".
Stock Exchange Listing. BMS has agreed in the Merger Agreement to use its
reasonable best efforts to cause the shares of BMS Common Stock issued in the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date. Such approval for listing is a condition to
the obligation of each of BMS, BMS Sub and Axion to consummate the Merger. See
"The Merger--Stock Exchange Listing" and "--Conditions--Conditions to Each
Party's Obligation to Effect the Merger".
Conditions. The Merger Agreement provides that the respective obligation of
each party to effect the Merger is subject to certain conditions, including the
approval of the Merger Proposal by the stockholders of Axion, the approval of
the Preferred Stock Proposal by holders of Axion Preferred Stock, the receipt of
opinions with respect to the tax consequences of the Merger and the
Distribution, respectively, consummation of the Contributions and the
Distribution, the absence of certain material adverse changes, the receipt of
certain regulatory approvals and, in the case of BMS, the exercise or
cancelation of all outstanding Axion Options, the conversion of all shares of
Axion Preferred Stock into shares of Axion Common Stock, the absence of Axion
indebtedness in excess of specified levels and the absence of Dissenting Shares.
See "The Merger--Conditions".
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of Axion: (a) by mutual written
consent of BMS, BMS Sub and Axion; (b) by either BMS or Axion: (i) if, upon a
vote at the Special Meeting or any adjournment thereof, any required approval of
the stockholders of Axion shall not have been obtained; (ii) if the Merger shall
not have been consummated on or before October 31, 1996, unless the failure to
consummate the Merger is the result of a wilful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for any part
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thereof (but in no event beyond December 31, 1996) during which any party will
be subject to a nonfinal order, decree, ruling or action restraining, enjoining
or otherwise prohibiting the consummation of the Merger or the calling or
holding of the Special Meeting; or (iii) if any governmental entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action will have become final and nonappealable; (c) by
Axion if BMS or BMS Sub shall have failed to comply in any material respect with
any of the covenants or agreements contained in the Merger Agreement or any of
the other Documents (as defined herein) to be performed by BMS or BMS Sub at or
prior to the time of termination, which breach will not have been cured within
30 days following written notice of such breach; or (d) by BMS if Axion or any
of its subsidiaries shall have failed to comply in any material respect with any
of the covenants or agreements contained in the Merger Agreement or any Document
to be performed by Axion or any of its subsidiaries at or prior to the time of
termination, which breach shall not have been cured within 30 days following
written notice of such breach.
Accounting Treatment. The Merger will be accounted for by BMS as a
"purchase" for financial accounting purposes in accordance with generally
accepted accounting principles ("GAAP"), whereby the purchase price will be
allocated based on the fair values of assets acquired and liabilities assumed.
See "The Merger--Accounting Treatment".
The Distribution
The Distribution Agreement provides for a series of asset and stock
transfers and liability assumptions between and among Axion, AHC and certain of
Axion's subsidiaries prior to the Distribution. The purpose and effect of such
asset and stock transfers and liability assumptions is to separate the Acquired
Business, which is not being acquired by BMS in the Merger, from the Retained
Business prior to the Time of Distribution. Accordingly, the Retained Business
will constitute all the business, assets and liabilities of Axion at the
Effective Time. Axion's stockholders are being asked to vote only on the Merger
Proposal and, in the case of holders of Axion Preferred Stock, the Preferred
Stock Proposal, and are not being asked to vote on the Distribution. See "The
Distribution".
The Distribution will be effected by the distribution to each holder of
record of Axion Common Stock, as of the close of the stock transfer books on the
record date for the Distribution (the "Distribution Record Date"), of
certificates representing one share of AHC Preferred Stock for each share of
outstanding Axion Common Stock held of record by such holder. See "The
Distribution--Terms of the Distribution Agreement".
BMS, Axion, BMS Sub, AHC and certain other parties will enter into certain
agreements, as applicable, designed to effectuate the separation of the Acquired
Business from the Retained Business and to facilitate the operation of AHC as a
separate entity. Each of the Former Axion Stockholders will also become a party
to certain of those agreements. See "Risk Factors", "The Merger-Indemnification
Matters; Escrow; Appointment of AHC as Representative" and "The
Distribution--Terms of the Tax Matters Agreement".
Indemnification Agreement
AHC, the 81% AHC Subsidiaries (including OPUS Sub), the Former Axion
Stockholders, BMS, the Surviving Corporation, OPUS, OTNC and the Partnership
will enter into a Post-Closing Covenants and Indemnification Agreement, the form
of which is attached as Appendix C to this Proxy Statement/Prospectus and is
incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Indemnification Agreement"), pursuant
to which AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each Former
Axion Stockholder will indemnify BMS, the Surviving Corporation, OTNC, OPUS, the
Partnership and their respective subsidiaries and affiliates against certain
Indemnifiable Losses (as defined herein) relating to or arising from any breach
of any representation, warranty or covenant of Axion or any of its subsidiaries
in any Document; any material misstatements or omissions contained in this Proxy
Statement/Prospectus or the Information Statement
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with respect to information related to Axion and its Subsidiaries; the Acquired
Assets, the Assumed Liabilities and the Acquired Business and the business of
AHC and OPUS Sub (other than Retained Liabilities); the business of Axion and
its Subsidiaries prior to the Merger (other than Retained Liabilities); claims
of stockholders and certain other persons to the extent relating to or arising
from the execution by Axion or any of its Subsidiaries of any of the Documents
or the consummation of the transactions contemplated thereby (including claims
for indemnification by any officer or director of Axion or any of its
Subsidiaries); the Excess Axion Expenses; certain liabilities related to the
existing contractual arrangements between BMS, on the one hand, and OTNC and the
Partnership, on the other hand; but excluding Indemnifiable Losses relating to
tax liabilities, which are the subject of the Tax Matters Agreement (as defined
below). The indemnification obligations of the Former Axion Stockholders under
the Indemnification Agreement will be secured by the Escrowed Shares, and the
indemnification obligations of AHC and its subsidiaries will be secured by the
Escrowed Cash, on the terms and conditions set forth in the Escrow Agreement
described below. The indemnification obligations of each of the Former Axion
Stockholders under the Indemnification Agreement will be limited in amount to
the Escrowed Shares, except in certain circumstances involving fraud,
intentional misrepresentation or intentional breach of a covenant by any such
Former Axion Stockholder. The indemnification obligations of AHC and the 81% AHC
Subsidiaries will not be limited in amount to the Escrowed Cash. The
indemnification obligations under the Indemnification Agreement are subject to
certain agreed limitations as to amount and duration. BMS and its subsidiaries
will also indemnify AHC and its subsidiaries with respect to certain matters.
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of the
Tax Matters Agreement" and "--Terms of the Escrow Agreement", "Relationship with
BMS--Indemnification Agreement; Escrow Agreement; Tax Matters Agreement" and
"Risk Factors--Indemnification Obligations of the Former Axion Stockholders, AHC
and the 81% AHC Subsidiaries".
Indemnification liabilities for losses arising from or related to any
breach of any representation, warranty or covenant by Axion or any of its
Subsidiaries in any Document or any losses directly related to OTN or the OPUS
Station Business are subject to a $500,000 threshold and a $12,000,000 cap.
Indemnification liabilities for losses relating to or arising out of breaches of
any representation, warranty or covenant that is directly related to OTN are
limited to 50% of the amount of such losses. All other indemnification
obligations are unlimited in amount. Indemnification obligations for losses
related to or arising from any breach of representation or warranty of Axion or
any of its Subsidiaries in any of the Documents terminate on March 31, 1998 (or
in certain limited circumstances, on the third anniversary of the Closing Date).
All other indemnification obligations survive in perpetuity.
Tax Matters Agreement
BMS, the Surviving Corporation, the 81% AHC Subsidiaries (including OPUS
Sub) and AHC, on its own behalf and as representative of (a) the 81% AHC
Subsidiaries and (b) each of the Former Axion Stockholders, will enter into a
Tax Matters Agreement, the form of which is attached as Appendix D to this Proxy
Statement/Prospectus and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Tax Matters
Agreement") which sets forth each party's rights and obligations with respect to
certain tax payments, tax refunds and control of contests relating to tax
matters and also provides for (i) AHC, the 81% AHC Subsidiaries and each of the
Former Axion Stockholders to indemnify BMS, the Surviving Corporation, OTNC,
OPUS, the Partnership and their respective subsidiaries and affiliates from
certain tax liabilities (including tax liabilities that would arise if, contrary
to expectations, the Contributions fail to be tax-free or the Distribution fails
to qualify as a tax-free spinoff) and (ii) BMS, the Surviving Corporation, OPUS,
OTNC, and the Partnership to indemnify AHC, OPUS Sub and each of their
respective subsidiaries and affiliates from certain other tax liabilities. The
indemnification obligations of each of the Former Axion Stockholders will be
limited to the Escrowed Shares, except in certain circumstances involving fraud,
intentional misrepresentation or intentional breach of a covenant by any such
Former Axion Stockholder. See "The Distribution--Terms of the Tax Matters
Agreement", "Relationship with BMS--Indemnification Agreement; Escrow Agreement;
Tax Matters Agreement" and "Certain Federal Income Tax Consequences" and "Risk
Factors--Indemnification Obligations of the Former Axion Stockholders, AHC and
the 81% AHC Subsidiaries".
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Escrow Agreement
BMS, AHC, the 81% AHC Subsidiaries and the Former Axion Stockholders and
[___] (the "Escrow Agent") will enter into an Escrow Agreement, the form of
which is attached hereto as Appendix E to this Proxy Statement/Prospectus and is
incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Escrow Agreement") pursuant to which
the Former Axion Stockholders will deposit the Escrowed Shares and AHC will
deposit the Escrowed Cash into escrow to secure the indemnity obligations of
AHC, the 81% AHC Subsidiaries and the Former Axion Stockholders under the
Indemnification Agreement and the Tax Matters Agreement. There can be no
assurance as to whether all or any portion of the Escrowed Shares will be
released to the Former Axion Stockholders. The indemnification obligations of
each of the Former Axion Stockholders will be limited to the Escrowed Shares,
except in certain circumstances involving fraud, intentional misrepresentation
or intentional breach of a covenant by any such Former Axion Stockholder, and
will terminate one year after the Closing Date, subject to a holdback of
Escrowed Shares for any then pending claims. To the extent not previously paid
to BMS in respect of an indemnification loss, up to $4,000,000 of the Escrowed
Cash may be released to AHC on the second anniversary of the Closing Date and
the balance of such Escrowed Cash may be released to AHC on the sixth
anniversary of the Closing Date, in each case subject to a holdback for any then
pending claims. AHC and the 81% AHC Subsidiaries' indemnification obligations
are not limited to the Escrowed Cash. There can be no assurance as to whether
all or any portion of such Escrowed Cash will eventually be released to AHC or
that the indemnification obligations of AHC and the 81% AHC Subsidiaries will
not exceed the amount of the Escrowed Cash. Failure to obtain the release of
such Escrowed Cash or the incurrence of indemnification obligations in excess of
the Escrowed Cash (which AHC and the 81% AHC Subsidiaries may not have the
resources to pay) could have a material adverse effect on AHC's business,
financial condition or results of operations and, accordingly, the value of the
AHC Preferred Stock. There also can be no assurance that AHC and the 81% AHC
Subsidiaries will have sufficient resources or liquidity to meet their
indemnification obligations and, accordingly, there can be no assurances that
the value of the AHC Preferred Stock will not be materially adversely affected.
See "The Distribution--Terms of the Escrow Agreement", "--Terms of the
Indemnification Agreement" and "--Terms of the Tax Matters Agreement",
"Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement" and "Risk Factors--Indemnification Obligations of the former Axion
Stockholders, AHC and the 81% AHC Subsidiaries".
Recommendation of the Axion Board
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and the Axion stockholders. Accordingly, the Axion
Board has unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and recommends that the stockholders
of Axion vote FOR the adoption and approval of the Merger Proposal and that the
holders of Axion Preferred Stock vote FOR approval of the Preferred Stock
Proposal. See "The Merger--Background and Reasons for the Merger; Recommendation
of the Axion Board".
The Special Meeting
Time, Place and Date
The Special Meeting will be held on [ ], 1996, at 10:00 a.m., local time,
at the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
legal counsel to Axion, located at 600 Hansen Way, Second Floor, Palo Alto,
California 94304.
Purpose of Special Meeting; Stockholders Entitled to Vote; Vote Required
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At the Special Meeting, (i) stockholders of Axion of record as of the
Record Date will be asked to consider and vote upon the Merger Proposal and (ii)
holders of Axion Preferred Stock of record as of the Record Date will be asked
to consider and vote upon the Preferred Stock Proposal. Approval of the Merger
Proposal requires the affirmative vote of (i) at least a majority of the total
number of votes entitled to be cast by holders of Axion Common Stock and holders
of Axion Preferred Stock, voting together as a single class (with each share of
Axion Preferred Stock having voting power equivalent to one share of Axion
Common Stock) and (ii) at least a majority of the total number of votes entitled
to be cast by holders of Axion Preferred Stock, voting together as a single
class. Approval of the Preferred Stock Proposal requires the affirmative vote of
at least 66-2/3 percent of the total number of votes entitled to be cast by
holders of Axion Preferred Stock, voting together as a single class. It is a
condition to the respective obligations of each party to the Merger Agreement
that the Preferred Stock Proposal be approved by the holders of Axion Preferred
Stock. If the Merger Agreement is terminated prior to the Distribution Record
Date, the conversion of Axion Preferred Stock into Axion Common Stock as
contemplated by the Preferred Stock Proposal will not occur.
As of the Record Date, directors and executive officers of Axion and their
affiliates beneficially owned an aggregate of [ ]shares of Axion Common Stock,
or approximately [ ]% of the shares of Axion Common Stock outstanding on such
date. As of the Record Date, directors and executive officers of Axion and their
affiliates beneficially owned an aggregate of [ ] shares of Axion Preferred
Stock, or approximately [ ]% of the shares of Axion Preferred Stock outstanding
on such date. As of the Record Date, the total number of votes entitled to be
cast by holders of Axion Common Stock and Axion Preferred Stock, voting as a
single class (with each share of Axion Preferred Stock having voting power
equivalent to that of one share of Axion Common Stock) was [ ]. As of the Record
Date, directors and executive officers of Axion and their affiliates
beneficially owned shares of Axion Common Stock or Axion Preferred Stock
representing an aggregate of [ ]% of the total number of votes entitled to be
cast by all stockholders of Axion, voting as a single class. See "The Special
Meeting--Vote Required".
Stockholder Agreement
Certain stockholders of Axion which are the beneficial owners, as of the
Record Date, of shares of Axion Common Stock and shares of Axion Preferred Stock
have entered into the Stockholder Agreement dated as of August 2, , 1996 (the
"Stockholder Agreement") with BMS and BMS Sub pursuant to which each such
stockholder has agreed to, among other things, vote all of such shares in favor
of the Merger Agreement and the transactions contemplated thereby, including the
Merger, and has granted BMS an irrevocable proxy to so vote such shares. Such
shares represent [ ]% of the total number of votes entitled to be cast by
holders of Axion Common Stock and Axion Preferred Stock, voting together as a
single class, and [ ]% of the total number of votes entitled to be cast by
holders of Axion Preferred Stock. Accordingly, the Merger Proposal can be
approved by the affirmative vote of such shares even if all other stockholders
of Axion vote against the Merger Proposal. Also, pursuant to such Stockholder
Agreement, each such holder of Axion Preferred Stock has agreed to vote all
shares of Axion Preferred Stock owned by such stockholder in favor of the
Preferred Stock Proposal and has granted BMS an irrevocable proxy to so vote
such shares. Accordingly, the Preferred Stock Proposal can be approved by the
affirmative vote of such shares even if all the other holders of Axion Preferred
Stock vote against the Preferred Stock Proposal. See "The Special Meeting--Vote
Required". The Stockholder Agreement also prohibits such stockholders from
transferring their shares of Axion Common Stock or Axion Preferred Stock until
the Merger is consummated or the Merger Agreement is terminated.
Certain Federal Income Tax Consequences
The Distribution
Ernst & Young LLP ("Ernst & Young"), certified public accountants to Axion,
have rendered an opinion to the effect that, based upon certain representations
of BMS, BMS Sub, AHC and certain of the Former Axion
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Stockholders of Axion, among other things, the Distribution should qualify as a
tax-free spinoff pursuant to Section 355 of the Internal Revenue Code of 1986,
as amended (the "Code"), and, as a result, holders of Axion Common Stock should
recognize no gain or loss upon the receipt of AHC Preferred Stock pursuant to
the Distribution. Consummation of the Distribution and the Merger is conditioned
on a reaffirmation of that opinion at the Time of Distribution by Ernst & Young.
Such opinion is based on Ernst & Young's interpretation as to how various
requirements of Code Section 355 should apply to the particular facts presented
by the Distribution. With respect to some of these interpretations, no direct
legal precedents exist. Accordingly, there can be no assurance that the IRS will
agree with the conclusions set forth in the Ernst & Young opinion. No ruling has
been sought or will be received from the Internal Revenue Service (the "IRS"),
and such opinion is not binding on the IRS. Moreover, no published rulings or
cases squarely address the qualification under Section 355 of a transaction
identical to the Distribution. If the IRS were to assert successfully that the
Distribution did not qualify for tax-free treatment, the receipt of AHC
Preferred Stock in the Distribution would be a taxable transaction to Axion and
the Former Axion Stockholders for federal income tax purposes. Stockholders are
urged to consult their own tax advisors regarding such tax consequences. See
"Certain Federal Income Tax Consequences".
If, notwithstanding receipt of such opinion from Ernst & Young, it is
determined that the Distribution does not qualify as a tax-free spinoff under
Section 355 of the Code, then BMS may seek indemnification from AHC and the
Former Axion Stockholders pursuant to the terms of the Tax Matters Agreement and
the Escrow Agreement. Such an event could result in failure by the Former Axion
Stockholders to obtain the release of any of the Escrowed Shares, could result
in AHC's failure to obtain the release of any of the Escrowed Cash and could
require AHC to provide additional funds to indemnify BMS. Failure by AHC to
obtain the release of the Escrowed Cash, or the requirement of additional
payments by AHC, could have a material adverse effect on AHC or the value of the
AHC Preferred Stock. See "The Distribution--Terms of the Tax Matters Agreement"
and "--Terms of the Escrow Agreement". See also "Risk Factors".
The Merger
Axion has received an opinion of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, counsel for Axion, to the effect that, based upon
certain representations of BMS, BMS Sub, Axion and Certain Stockholders of
Axion, among other things, the Merger will constitute a reorganization within
the meaning of Section 368(a) of the Code. Provided the Merger does so qualify,
holders of Axion Common Stock will recognize no gain or loss upon the conversion
of shares of Axion Common Stock into shares of BMS Common Stock, except for gain
or loss recognized on receipt of cash in lieu of any fractional share interest
in BMS Common Stock. No rulings have been sought or will be received from the
IRS, and such opinion is not binding on the IRS. If the IRS were to assert
successfully that the Merger did not qualify for tax-free treatment, the receipt
of BMS Common Stock in the Merger would be a taxable transaction for federal
income tax purposes and the Distribution would not qualify as a tax-free
spinoff. Stockholders are urged to consult their own tax advisors regarding such
tax consequences. See "Certain Federal Income Tax Consequences".
Interests of Certain Persons in the Transactions
In considering the recommendation of the Axion Board, Axion stockholders
should be aware that certain members of Axion's management and the Axion Board
have certain interests in the Merger and the Distribution that are in addition
to the interests of Axion stockholders generally. These interests include the
following consequences under the Axion 1989 Plan (as defined herein) and the
Axion 1995 Plan (as defined herein) with respect to Axion Options: (i) all Axion
Options that had not previously become exercisable and vested will become fully
exercisable and vested upon the consummation of the Merger; (ii) Axion will
extend loans to each executive officer, in addition to each current employee or
consultant, holding an outstanding option to enable such individual to exercise
in full his or her options; and (iii) each officer who exercises his or her
Axion options will receive in the Merger shares of BMS Common Stock, which stock
will be freely tradable immediately following the consummation of the Merger,
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subject only to contractual restrictions on the officer's ability to resell the
BMS Common Stock and the limitations set forth under Rule 145 under the
Securities Act. As of June 30, 1996, options to purchase a total of 1,722,433
shares of Axion Common Stock, at exercise prices ranging from $0.075 to $10.00
per share, were held by 101 Axion employees and consultants.
In addition, OTNC has entered into an employment agreement with David
Levison dated as of August 2, 1996, which agreement becomes effective on the
Closing Date and continues for a period of two years. Pursuant to this
agreement, David Levison will serve as President of OTNC. OTNC has entered into
employment agreements substantially similar to David Levison's (other than
compensation amounts) with Warren Dodge, Bret Brodowy, Michael Cunningham, Lynn
Hammerschmidt and James Adams. Axion has also adopted a severance plan
applicable to certain employees of OTNC.
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. See "The Merger--Interests of Certain Persons in the
Transactions" and "Effect of Transactions on Axion Employees and Axion Benefit
Plans".
Relationship with BMS
Following the Merger, AHC and its subsidiaries will continue to have
certain relationships with BMS.
AHC and certain of its subsidiaries and BMS and certain of its subsidiaries
will be parties to the Indemnification Agreement, the Tax Matters Agreement and
the Escrow Agreement. See "The Distribution--Terms of the Indemnification
Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms of the Escrow
Agreement".
AHC and the Surviving Corporation will enter into a Trademark License
Agreement ("License Agreement") pursuant to which AHC will grant an exclusive,
royalty-free license to the Surviving Corporation to use the "OPUS" name in
connection with the OPUS Station Business in the U.S. for a period of one year.
AHC and the Surviving Corporation will also enter into a Transitional Services
Agreement (the "Transitional Services Agreement") pursuant to which AHC and the
Surviving Corporation will provide certain services to each other following the
Merger. See "Relationship with BMS--License Agreement"; "--Transitional Services
Agreement".
AHC will enter into the AHC Supply Agreement (the "AHC Supply Agreement")
and OnCare will enter into the OnCare Supply Agreement (the "OnCare Supply
Agreement") which will provide that AHC and OnCare will use the Partnership as
their exclusive provider of oncology pharmaceutical products and supplies and
that the Partnership will provide such products and supplies at the lowest price
it offers to a specified category of purchaser (subject to certain conditions).
AHC will enter into the AHC Medstation Agreement (the "AHC Medstation
Agreement") and OnCare will enter into the OnCare Medstation Agreement (the
"OnCare Medstation Agreement") which will provide that AHC and OnCare will use
OTN Medstation, Inc., an entity to be formed as a wholly owned subsidiary of
OTNC ("OTN Medstation"), as their exclusive provider of oncology drug dispensing
machines and that OTN Medstation will provide such machines at the lowest price
it offers to a specified category of purchaser (subject to certain conditions).
OTN's existing supply agreements with OnCare and AHC will be terminated on the
Closing Date. See "Relationship with BMS--AHC Supply Agreement; OnCare Supply
Agreement; AHC Medstation Agreement; OnCare Medstation Agreement".
BMS will enter into separate Noncompetition Agreements with AHC and OnCare
and each of Michael D. Goldberg, the President and Chief Executive Officer of
Axion, OnCare and AHC and a director of Axion, and
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Garrett J. Roper, the Senior Vice President and Chief Financial Officer of
Axion, OnCare and AHC and the Secretary of AHC (the "Noncompetition Agreements")
which will prohibit such entities or persons and their affiliates, as the case
may be, from having any relationship with any entity that engages in the
distribution of oncology drugs, supplies or biologics to certain customers or
the automated drug dispensing business in the United States. See "Relationship
with BMS--Noncompetition Agreements".
Dissenters' Rights
Each holder of Axion Common Stock who (i) delivers to Axion a written
demand for appraisal to receive payment of the "fair value" of his or her shares
prior to the Special Meeting and (ii) votes against approval of the Merger
Agreement or who abstains from such vote is entitled to the rights and remedies
of dissenting stockholders upon complying with the procedures set forth in
Section 262 ("Section 262") of the Delaware General Corporate Law (the "DGCL"),
a copy of which is attached as Appendix F hereto. A vote against approval of the
Merger Agreement or abstention from such vote, by itself, will not constitute a
demand for appraisal within the meaning of Section 262. It is a condition to the
obligation of BMS to effect the Merger that no Dissenting Shares be outstanding
at the Effective Time. See "The Merger--Dissenters' Rights".
Certain Regulatory Approvals
The consummation of the Merger is subject to, among other approvals, the
expiration or termination of the relevant waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Axion and BMS each filed notification and report forms under the HSR Act
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Justice Department (the "Antitrust Division") on July 10, 1996. See "The
Merger--Certain Regulatory Approvals".
Comparison of Certain Rights of Holders of BMS Common Stock and Axion Common
Stock
See "Comparison of Certain Rights of Holders of BMS Common Stock and Axion
Common Stock" for a summary of certain significant differences between the
rights of holders of BMS Common Stock and the rights of holders of Axion Common
Stock. See "Comparison of Certain Rights of Holders of AHC Preferred Stock and
Axion Common Stock" in the Information Statement attached as Appendix G hereto
for a summary of certain significant differences between the rights of holders
of AHC Preferred Stock and the rights of holders of Axion Common Stock.
Risk Factors
In deciding whether to approve and adopt the Merger Proposal, and, as
applicable, the Preferred Stock Proposal, stockholders should carefully evaluate
the matters set forth under "Risk Factors" herein and under "Special Factors" in
the Information Statement attached as Appendix G hereto, in addition to other
matters described herein and therein.
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Market Price and Dividend Data
Axion
There is no public market for Axion Common Stock. Axion has not declared or
paid any cash dividends on Axion Common Stock since its incorporation in 1987
and, except for the Distribution, does not intend to declare or pay any
dividends. Pursuant to the Merger Agreement, Axion has agreed that, during the
period from the date of Merger Agreement to the Effective Time, except for the
Distribution, Axion will not issue, declare, set aside, make or pay any
dividends on or other distributions with respect to its capital stock.
BMS
BMS Common Stock is listed and traded on the NYSE and the PSE under the
symbol "BMY". The table below sets forth, for the fiscal periods indicated, the
high and low market prices per share of BMS Common Stock and the dividends per
share declared on BMS Common Stock for such periods.
BMS Common Stock
High Low Dividends
Fiscal 1994
First Quarter............................... $59 7/8 $50 $.73
Second Quarter.............................. 56 1/4 50 1/8 .73
Third Quarter............................... 58 3/4 51 1/8 .73
Fourth Quarter.............................. 61 55 3/4 .73
Fiscal 1995
First Quarter............................... 65 7/8 57 3/4 .74
Second Quarter.............................. 69 7/8 61 7/8 .74
Third Quarter............................... 74 7/8 66 1/2 .74
Fourth Quarter.............................. 87 1/8 72 .74
Fiscal 1996
First Quarter............................... 90 1/4 81 1/8 .75
Second Quarter.............................. 90 1/4 78 .75
Third Quarter (through
August 1, 1996)........................... 90 3/8 83 .75
The closing price for BMS Common Stock on the NYSE on August 1, 1996, the
last full trading day prior to the execution of the Merger Agreement, was $88
1/2 per share as reported on the Dow Jones News\Retrieval(R) Service. The
closing price for BMS Common Stock on the NYSE on , 1996, the most recent
trading date available prior to printing this Proxy Statement/Prospectus, was $[
] per share as reported on the Dow Jones News\Retrieval(R) Service. For current
price information, Axion stockholders are urged to consult publicly available
sources.
Holders of BMS Common Stock are entitled to receive dividends when, as and
if declared by the BMS Board out of funds legally available therefor. The timing
and amount of any future dividends will depend on circumstances existing at the
time, including earnings, cash requirements, applicable federal and state laws
and regulations and policies and other factors deemed relevant by the BMS Board.
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<PAGE>
- --------------------------------------------------------------------------------
Comparative Per Share Data
The following table sets forth certain per share historical financial
information for BMS and Axion, certain pro forma per share information for Axion
giving effect to the payment of the Preference Amount, the Contributions and the
Distribution and equivalent pro forma per share information of Axion as of and
for the three months ended March 31, 1996 and for the year ended December 31,
1995. BMS and Axion pro forma combined comparative per share data giving effect
to the Merger is not considered to be material to the consolidated financial
statements of BMS and, accordingly, has not been included below.
The following information should be read in conjunction with and is
qualified in its entirety by the respective audited and unaudited financial
statements of BMS and Axion incorporated by reference or included elsewhere in
this Proxy Statement/Prospectus and the "Pro Forma Condensed Financial
Statements of Axion" and the notes thereto presented elsewhere herein. See
"Incorporation of Certain Information by Reference", "Pro Forma Condensed
Financial Information" and "Index to Financial Statements of Axion Inc.".
<TABLE>
<CAPTION>
Axion Share
BMS Axion Axion Equivalent
Historical Historical Pro Forma Pro Forma(d)
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995
Net Income per common share........ $ 3.58(a) $ .90 $ 1.12 $ 0.35
Cash dividends per common share.... 2.96 -- --
Three months ended March 31, 1996
Net Income per common share........ $ 1.44 $ .20 $ .27 $ 0.14
Cash dividends per common share.... .75 -- --
As of March 31, 1996
Book value per common share........ $ 11.81 $ 2.99(b) $ (.87)(c) $ 1.17
</TABLE>
(a) Including a special charge for pending and future product liability claims
of $950 million before taxes ($590 million after taxes, or $1.17 per
share), and a provision for restructuring of $310 million ($198 million
after taxes).
(b) Assuming conversion of all 6,740,890 shares of Axion Preferred Stock into
6,740,890 shares of Axion Common Stock. Per share liquidation preferences
of the various series of Axion Preferred Stock are as follows (in
dollars): A-$0.75; B-$3.40; C-$4.79; D-$5.60; E-$7.25 and F-$10.00. The
historical book value of the 1,604,354 shares of Axion Common Stock after
deductions of the liquidation preferences of the various series of
Preferred Stock is $.19 per share.
(c) $(0.73) per share after giving effect to assumed exercise of options and
warrants to purchase 1,632,512 shares of Axion Common Stock.
(d) Based on an assumed Conversion Number of 0.099 shares of BMS Common Stock
for each share of Axion Common Stock (9,977,756 in total) representing the
Diluted Share Assumption).
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<PAGE>
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Selected Historical Financial Information
Axion
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, the Company's Consolidated
Financial Statements and notes thereto included elsewhere herein. The
consolidated statement of operations data for the three months ended March 31,
1995 and 1996 have been derived from unaudited consolidated financial statements
that have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments necessary
for a fair presentation of financial position and results of operations for the
unaudited interim periods. Operating results for the three months ended March
31, 1996 are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 1996.
Statements of Operations Data
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- -----------------------------------------------------
(unaudited)
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 60,443 $40,442 $ 198,950 $ 126,369 $ 56,052 $ 36,115 $ 16,444
Costs and expenses:
Cost of revenues 54,465 36,193 176,292 112,606 51,006 33,566 15,612
Sales and marketing 476 505 2,007 1,922 1,635 1,156 686
General and administrative 2,598 2,490 11,442 8,409 5,734 2,274 1,480
Product development -- -- -- -- 1,607 630 --
-------- ------- --------- --------- -------- -------- --------
Total costs and expenses 57,539 39,188 189,741 122,937 59,982 37,626 17,778
-------- ------- --------- --------- -------- -------- --------
Income (loss) from operations 2,904 1,254 9,209 3,432 (3,930) (1,511) (1,334)
Other income and expense:
Interest income (expense), net (65) 42 (281) 941 375 414 161
Other nonoperating income (expense) -- -- 146 (2,945) (1,407) --
Minority interest -- -- -- -- 996 -- --
-------- ------- --------- --------- -------- -------- --------
Total other income and expense, net (65) 42 (135) (2,004) (36) 414 161
-------- ------- --------- --------- -------- -------- --------
Income (loss) before provision for income taxes 2,839 1,296 9,074 1,428 (3,966) (1,097) (1,173)
Provision for income taxes 1,098 96 1,187 -- -- -- --
-------- ------- --------- --------- -------- -------- --------
Net income (loss) $ 1,741 $ 1,200 $ 7,887 $ 1,428 $ (3,966) $ (1,097) $ (1,173)
-------- ------- --------- --------- -------- -------- --------
Net income (loss) per share (a) $ (0.20) $ 0.14 $ 0.90 $ 0.17 $ (2.52) $ (0.71) $ (0.98)
Number of shares used in above computation $ 8,816 8,796 8,807 8,190 1,573 1,552 1,197
</TABLE>
- --------------
(a) See Note 1 to consolidated financial statements of Axion elsewhere herein.
<TABLE>
<CAPTION>
Balance Sheet Data
March 31, December 31,
--------- ----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets $130,054 $124,493 $ 97,146 $ 48,442 $ 18,269 $ 8,317
Total assets 144,791 129,128 98,059 49,329 18,818 8,732
Payable to BMS-Sales Agency Agreement 52,148 47,755 36,508 28,880 -- --
Borrowings under bank lines of credit 35,617 35,617 -- -- 1,400 800
Loan payable to BMS -- -- 30,000 -- -- --
Total stockholders' equity 24,967 23,226 16,071 8,882 12,858 5,606
</TABLE>
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20
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<PAGE>
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Retained Business
Prior to 1995, separate financial statements were not maintained by Axion
for the Acquired Business. Therefore, the following selected financial data of
the Retained Business for the four years ended December 31, 1994 are derived
from the audited financial statements of Axion. The financial data of the
Retained Business for the year ended December 31, 1995 are derived from the
notes to the audited financial statements of Axion for that year, and the
financial data of the Retained Business for the three-month periods ended March
31, 1995 and 1996 are derived from notes to the unaudited financial statements
of Axion for those periods. Operating results of the Retained Business for the
three months ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1996. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information of Axion included herein.
Statements of Operations Data
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
--------------------- ----------------------------------------------------------
(unaudited)
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $ 60,398 $ 40,315 $ 195,335 $ 126,369 $ 56,052 $ 36,115 $ 16,444
Costs and expenses:
Cost of revenues 54,437 36,114 174,314 112,606 51,006 33,566 15,612
Sales and marketing 476 505 2,007 1,922 1,635 1,156 686
General and administrative 1,572 1,665 6,459 8,409 5,734 2,274 1,480
Product development -- -- -- -- 1,607 630 --
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses 56,485 38,284 182,780 122,937 59,982 37,626 17,778
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations 3,913 2,031 12,555 3,432 (3,930) (1,511) (1,334)
Other income and expense:
Interest income (expense), net (65) (42) (220) 941 375 414 161
Other nonoperating income (expense) -- -- 146 (2,945) (1,407) -- --
Minority interest -- -- -- -- 996 -- --
--------- --------- --------- --------- --------- --------- ---------
Total other income and expense, net (65) (42) (74) (2,004) (36) 414 161
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for income taxes 3,848 2,073 12,481 1,428 (3,966) (1,097) (1,173)
Provision for income taxes 1,500 406 2,500 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,348 $ 1,667 $ 9,981 $ 1,428 $ (3,966) $ (1,097) $ (1,173)
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
Balance Sheet Data
<TABLE>
<CAPTION>
March 31, December 31,
--------- ----------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets $129,918 $124,181 $ 97,146 $ 48,442 $ 18,269 $ 8,317
Total assets 144,301 128,816 98,059 49,329 18,818 8,732
Payable to BMS-Sales Agency Agreement 52,148 47,755 36,508 28,880 -- --
Borrowings under bank lines of credit 35,617 35,617 -- -- 1,400 800
Loan payable to BMS -- -- 30,000 -- -- --
Net assets 25,212 23,078 16,071 8,882 12,858 5,606
</TABLE>
The following pro forma balance sheet data at March 31, 1996 give effect to
the Merger and to the distribution of AHC by Axion, after the transfer from
Axion to AHC of: (i) a cash distribution from the Partnership to Axion of
$13,615 (which would have required additional borrowings of $11,074 at March 31,
1996) and $5,365 of cash and cash equivalents and short-term investments,
subject to adjustment ($5,000 of which will be placed in an escrow
- --------------------------------------------------------------------------------
21
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<PAGE>
fund) and (ii) $13,500 redemption and carrying value of 2,700,000 shares of
Series A redeemable preferred stock of OnCare Inc:
Current assets $ 122,012
Total assets 122,895
Payable to BMS-Sales Agency Agreement 52,148
Borrowings under bank line of credit 46,691
Net assets (7,268)
- --------------------------------------------------------------------------------
22
<PAGE>
<PAGE>
BMS
The selected historical consolidated financial data of BMS set forth in the
table below have been derived from the audited financial statements of BMS for
each of the five fiscal years through the period ended December 31, 1995 and the
unaudited financial statements of BMS for the three-month periods ended March
31, 1996 and 1995. The selected historical consolidated financial data set forth
below should be read in conjunction with the historical consolidated financial
statements and the notes thereto contained in BMS's Annual Report on Form 10-K
for the year ended December 31, 1995 and BMS's Quarterly Reports on Form 10-Q
for the three months ended March 31, 1996, which are incorporated by reference
herein. In BMS's opinion, all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the financial position and
results of operations for such three-month periods have been made. The results
of operations for the three-month period ended March 31, 1996 are not
necessarily indicative of the results to be expected for the full year 1996. See
"Incorporation of Certain Information by Reference" and "Available Information".
Pro forma financial statements for BMS giving effect to the Merger are not
included in this Proxy Statement/Prospectus because the Merger will not have a
material effect on BMS.
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended December 31,
------------------ -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(unaudited)
(Dollars in Millions, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net Sales $ 3,669 $ 3,301 $13,767 $11,984 $11,413 $11,156 $10,571
======= ======= ======= ======= ======= ======= =======
Net Earnings (a) $ 726 $ 657 $ 1,812 $ 1,842 $ 1,959 $ 1,538 $ 1,991
======= ======= ======= ======= ======= ======= =======
Earnings per common share (a) 1.44 1.29 3.58 3.62 3.80 2.97 3.82
Dividends per common share .75 .74 2.96 2.92 2.88 2.76 2.40
Balance Sheet Data (as of end
of period)(b)
Current assets 6,762 6,864 7,018 6,710 6,570 6,621 5,567
Property, plant and equipment,
net 3,765 3,701 3,760 3,666 3,374 3,141 2,936
Insurance recoverable 941 967 959 968 1,000 -- --
Excess of cost over net tangible
assets received in business
acquisitions 1,419 1,207 1,219 939 191 153 170
Total assets $13,824 $13,454 $13,929 $12,910 $12,101 $10,804 $ 9,416
Current liabilities 4,760 4,589 4,806 4,274 3,065 3,300 2,752
Long-term debt 626 665 635 644 588 176 135
Total liabilities 7,888 7,495 8,107 7,206 6,161 4,784 3,621
Stockholders' equity $ 5,936 $ 5,959 $ 5,822 $ 5,704 $ 5,940 $ 6,020 $ 5,795
</TABLE>
(a) Includes a special charge for pending and future product liability claims
of $950 million before taxes, $590 million after taxes, or $1.17 per
share, in 1995, $750 million before taxes, $488 million after taxes, or
$.96 per share, in 1994 and $500 million before taxes, $310 million after
taxes, or $.60 per share, in 1993. Includes a provision for restructuring
of $310 million before taxes, $198 million after taxes, in 1995 and $890
million before taxes, $570 million after taxes, in 1992.
(b) Reference is made to Note 2 Special Charge, Note 3 Acquisitions and
Divestitures, Note 4 Restructuring and Note 17 Contingencies, appearing in
the Notes to Consolidated Financial Statements included in Part II, Item 8
of the BMS Form 10-K, which is incorporated herein by reference.
23
<PAGE>
<PAGE>
RISK FACTORS
In deciding whether to approve and adopt the Merger Proposal and, as
applicable, the Preferred Stock Proposal, stockholders should carefully evaluate
the following matters, in addition to the matters set forth under "Special
Factors" in the Information Statement attached hereto as Appendix G and other
matters described herein and in the Information Statement.
Indemnification Obligations of Former Axion Stockholders, AHC and the 81% AHC
Subsidiaries
AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each Former Axion
Stockholder will become a party to the Indemnification Agreement, the Tax
Matters Agreement and the Escrow Agreement. Pursuant to these agreements, AHC,
the 81% AHC Subsidiaries and the Former Axion Stockholders will agree to
indemnify the BMS Indemnified Parties (including BMS, the Surviving Corporation,
OPUS, OTNC and the Partnership) against certain liabilities, including
liabilities relating to or arising from any breach of any representation,
warranty or covenant of Axion or any of its subsidiaries in any Document; any
material misstatements or omissions contained in this Proxy Statement/Prospectus
or the Information Statement with respect to information related to Axion and
its Subsidiaries; the Acquired Assets, the Assumed Liabilities and the Acquired
Business and the business of AHC and OPUS Sub (other than Retained Liabilities);
the business of Axion and its Subsidiaries prior to the Merger (other than
Retained Liabilities); claims of stockholders and certain other persons to the
extent relating to or arising from the execution by Axion or any of its
Subsidiaries of any of the Documents or the consummation of the transactions
contemplated thereby (including claims for indemnification by any officer or
director of Axion or any of its Subsidiaries); the Excess Axion Expenses;
certain liabilities related to the existing contractual arrangements between
BMS, on the one hand, and OTNC and the Partnership, on the other hand; certain
pre-closing tax liabilities of Axion and its Subsidiaries; and any tax
liabilities that would arise if, contrary to expectations, the Contributions
fail to be tax-free or the Distribution fails to qualify as a tax-free spinoff.
To secure these indemnification obligations, immediately following the
Effective Time, the Escrowed Shares, valued at $5,000,000, will be placed in
escrow and AHC will place the Escrowed Cash of $5,000,000 in escrow. In
addition, AHC and the 81% AHC Subsidiaries each have agreed for a period of six
years following the Closing Date (subject to extension in certain circumstances)
to certain prohibitions on liquidation, payment of dividends or other
distributions (including by redemption or repurchase) with respect to any of its
capital stock and transactions with affiliates (including OnCare) on a non-arms'
length basis and to certain restrictions related to mergers or sales of all or
substantially all their assets. These prohibitions and restrictions were
designed to prevent AHC from engaging in transactions that might have the effect
of limiting the availability of AHC's assets to satisfy its indemnification
obligations to the BMS Indemnified Parties.
Certain of the AHC Indemnifying Parties' indemnification obligations are
subject to agreed limitations. Indemnification liabilities for losses arising
from or related to any breach of any representation, warranty or covenant by
Axion or any of its Subsidiaries in any Document or any losses directly related
to OTN or the OPUS Station Business are subject to a $500,000 threshold and a
$12,000,000 cap. Indemnification liabilities for losses relating to or arising
out of breaches of any representation, warranty or covenant that is directly
related to OTN are limited to 50% of the amount of such losses. All other
indemnification obligations are unlimited in amount. Indemnification obligations
for losses related to or arising from any breach of representation or warranty
of Axion or any of its Subsidiaries in any of the Documents terminate on March
31, 1998 (or in certain limited circumstances, on the third anniversary of the
Closing Date). All other indemnification obligations survive in perpetuity. In
addition, the indemnification obligations of each Former Axion Stockholder will
be limited in amount to such Former Axion Stockholders pro rata share of the
Escrowed Shares, except in certain circumstances involving fraud, intentional
misrepresentation or intentional breach of a covenant by any such Former Axion
Stockholder, and will terminate one year after the Closing Date, subject to a
holdback of Escrowed Shares for any then pending claims. To the extent
24
<PAGE>
<PAGE>
not previously paid to BMS in respect of an indemnification loss, up to
$4,000,000 of the Escrowed Cash may be released to AHC on the second anniversary
of the Closing Date and the balance of such Escrowed Cash may be released to AHC
on the sixth anniversary of the Closing Date, in each case subject to a holdback
for any then pending claims. AHC and the 81% AHC Subsidiaries' indemnification
obligations are not limited to the Escrowed Cash. THERE CAN BE NO ASSURANCE AS
TO WHETHER ALL OR ANY PORTION OF SUCH ESCROWED CASH WILL EVENTUALLY BE RELEASED
TO AHC OR THAT THE INDEMNIFICATION OBLIGATIONS OF AHC AND THE 81% AHC
SUBSIDIARIES WILL NOT EXCEED THE AMOUNT OF THE ESCROWED CASH. Failure to obtain
the release of such Escrowed Cash or the incurrence of indemnification
obligations in excess of the Escrowed Cash (which AHC and the 81% AHC
Subsidiaries may not have the resources to pay) could have a material adverse
effect on AHC's business, financial condition or results of operations and,
accordingly, the value of the AHC Preferred Stock. THERE ALSO CAN BE NO
ASSURANCE THAT AHC AND THE 81% AHC SUBSIDIARIES WILL HAVE SUFFICIENT RESOURCES
OR LIQUIDITY TO MEET THEIR INDEMNIFICATION OBLIGATIONS AND, ACCORDINGLY, THERE
CAN BE NO ASSURANCES THAT THE VALUE OF THE AHC PREFERRED STOCK WILL NOT BE
MATERIALLY ADVERSELY AFFECTED.
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of
the Tax Matters Agreement" and "--Terms of the Escrow Agreement" and
Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement".
Business of AHC After the Closing
The value of the AHC Preferred Stock to be received by stockholders of
Axion in the Distribution could be materially adversely affected by a number of
factors. These factors include, among other things, that the business of AHC is
at a developmental stage and has not generated significant revenues or realized
a profit to date, and competes in a business characterized by rapid change and
evolving standards. AHC's future development is dependent on its ability to
obtain sufficient funding, and AHC will initially be reliant on the Transitional
Services Agreement with BMS as well as its overall relationship with BMS. AHC's
business is relatively small and undiversified in nature.
Pursuant to the Indemnification Agreement, AHC and the 81% AHC Subsidiaries
each have agreed for a period of six years following the Closing Date (subject
to extension in certain circumstances) to certain prohibitions on liquidation,
payment of dividends or other distributions (including by redemption or
repurchase) with respect to any of its capital stock and transactions with
affiliates (including On Care) on a non-arms' length basis and to certain
restrictions related to mergers or sales of all or substantially all their
assets. These prohibitions and restrictions were designed to prevent AHC from
engaging in transactions that might have the effect of limiting the availability
of AHC's assets to satisfy its indemnification obligations to the BMS
Indemnified Parties. There can be no assurance that such restrictions will not
have a material adverse effect on the business or financial condition of AHC or
the value of the AHC Preferred Stock.
The AHC Indemnifying Parties' indemnification liabilities for losses
arising from or related to any breach of any representation, warranty or
covenant by Axion or any of its Subsidiaries in any Document or any losses
directly related to OTN or the OPUS Station Business are subject to a $500,000
threshold and a $12,000,000 cap. Indemnification liabilities for losses relating
to or arising out of breaches of any representation, warranty or covenant that
is directly related to OTN are limited to 50% of the amount of such losses. All
other indemnification obligations are unlimited in amount. Indemnification
obligations for losses related to or arising from any breach of representation
or warranty of Axion or any of its Subsidiaries in any of the Documents
terminate on March 31, 1998 (or in certain limited circumstances, on the third
anniversary of the Closing Date). All other indemnification obligations survive
in perpetuity. AHC and the 81% AHC Subsidiaries' indemnification obligations are
not limited to the Escrowed Cash. There can be no assurance as to whether all or
any portion of such Escrowed Cash will eventually be released
25
<PAGE>
<PAGE>
to AHC or that the indemnification obligations of AHC and the 81% AHC
Subsidiaries will not exceed the amount of the Escrowed Cash. Failure to obtain
the release of such Escrowed Cash or the incurrence of indemnification
obligations in excess of the Escrowed Cash (which AHC and the 81% AHC
Subsidiaries may not have the resources to pay) could have a material adverse
effect on AHC's business, financial condition or results of operations and,
accordingly, the value of the AHC Preferred Stock. There also can be no
assurance that AHC and the 81% AHC Subsidiaries will have sufficient resources
or liquidity to meet their indemnification obligations and, accordingly, there
can be no assurances that the value of the AHC Preferred Stock will not be
materially adversely affected.
The Indemnification Agreement provides that for a period of 6 years
following the effective Date, AHC may not declare any dividends on AHC's capital
stock. In addition, there is no existing trading market for AHC Preferred Stock.
AHC has not sought and does not intend to apply for listing of AHC Preferred
Stock on a securities exchange or seek approval for quotation through an
automated quotation system. There can be no assurance that any trading market
will develop for AHC Preferred Stock. In addition, the AHC certificate of
incorporation will provide for various restrictions on transfer of AHC Preferred
Stock. The certificates evidencing the AHC Preferred Stock will bear a legend
referring to these restrictions on transfer.
Risk of Decline in Market Value of BMS Common Stock Prior to the Effective Time
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options), and assuming an Average Value
of BMS Common Stock equal to $87.08 (the average per share closing price of BMS
Common Stock for the 10 full NYSE trading days ending on the first full NYSE
trading day immediately preceding the date hereof), the Conversion Number would
be 0.099 and the aggregate market value of BMS Common Stock to be received by
holders of Axion Common Stock in the Merger would be approximately $86 million,
or approximately $8.62 per share of Axion Common Stock. However, the Average
Value of BMS Common Stock is determined as of five full NYSE trading days
immediately preceding the Effective Time, at which time the market value of BMS
Common Stock may be less than the Minimum Price, and the number of issued and
outstanding shares of Axion Common Stock is determined as of immediately prior
to the Effective Time, which date will be after the date of the Special Meeting.
Therefore there can be no assurance that these assumptions will be true as of
the Effective Time, and the Conversion Number may be substantially less than
0.099, and the aggregate market value of BMS Common Stock to be received by
holders of Axion Common Stock in the Merger may be substantially less than $86
million, or approximately $8.62 per share. Under the terms of the Merger
Agreement, Axion does not have the right to decline to consummate the Merger
solely because the market value of BMS Common Stock immediately prior to the
Effective Time is substantially less than the Minimum Price. Therefore, if the
Merger is authorized and all other conditions to the Merger are satisfied or
waived on or prior to the Effective Time, Axion stockholders will assume the
risk of a decline in the market value of BMS Common Stock below the Minimum
Price after the date of the Special Meeting. See "The Merger--Terms of the
Merger" and "--Conditions".
Certain Federal Income Tax Consequences
Although each party to the Documents intends to treat the Distribution as a
tax-free spin-off for purposes of Section 355 of the Code and to treat the
Merger as a tax-free reorganization for purposes of Section 368 of the Code,
there is no assurance that the Internal Revenue Service (or any state or local
taxing authority) will agree with such characterization. If the Distribution is
determined to be taxable to Axion, BMS and Axion have the right under the Tax
Matters Agreement to seek indemnification from AHC. Such indemnification may
exceed the amount of Escrowed Cash or Escrowed Funds then remaining (if any), in
which case AHC will be required to pay such indemnification directly. Payment of
such indemnification may materially adversely affect AHC and, if AHC or the AHC
Indemnifying Parties (as defined herein) are unable to pay such amounts, payment
of such tax claims may
26
<PAGE>
<PAGE>
materially adversely affect Axion. Furthermore, if the Distribution is
determined to be taxable to Axion, the Former Axion Stockholders will also
realize gain or loss on the receipt of AHC Preferred Stock in the Distribution.
If the Merger is determined to be taxable, the Former Axion Stockholders
will realize gain or loss on the receipt of BMS Common Stock in the Merger, and
the tax-free characterization of the Distribution will be taxable to Axion and
the Former Axion Stockholders. See "Certain Federal Income Tax Consequences".
In connection with the tax opinions rendered pursuant to the Merger and the
Distribution, certain of the Former Axion Stockholders have or will sign letters
representing that they have no plan or intention to sell or otherwise dispose of
any of their holdings of (i) Axion capital stock prior to the Merger, (ii) the
AHC Preferred Stock received in the Distribution or (iii) the BMS Common Stock
received in the Merger (the "Continuity of Interest Letters"). In the event that
a Former Axion Stockholder knowingly made a misrepresentation in the Continuity
of Interest Letter that resulted in the Merger failing to qualify as a tax-free
reorganization under Code Section 368 or the Distribution failing to qualify as
a tax-free spin-off under Code Section 355, such stockholder would be
individually liable for all tax liability resulting therefrom. See "Certain
Federal Income Tax Consequences".
Vote Required; Stockholder Agreement
Certain stockholders of Axion which are the beneficial owners, as of the
Record Date, of shares representing [ ]% of the total number of votes entitled
to be cast by holders of Axion Common Stock and Axion Preferred Stock, voting
together as a single class and [ ]% of the total number of votes entitled to be
cast by holders of Axion Preferred Stock, have entered into the Stockholder
Agreement with BMS and BMS Sub. Pursuant to the Stockholder Agreement, each such
stockholder has agreed to, among other things, vote all of such shares in favor
of the Merger Agreement and the transactions contemplated thereby, including the
Merger, and to vote all shares of Axion Preferred Stock owned by such
stockholder in favor of converting the Axion Preferred Stock into Axion Common
Stock, and in each case has granted BMS an irrevocable proxy to so vote such
shares. Accordingly, the Merger Proposal can be approved by the affirmative vote
of such shares even if all other stockholders of Axion vote against the Merger
Proposal, and the Preferred Stock Proposal can be approved by the affirmative
vote of such shares even if all other holders of Axion Preferred Stock vote
against the Preferred Stock Proposal. The Stockholder Agreement also prohibits
such stockholders from transferring their shares of Axion Common Stock or Axion
Preferred Stock until the Merger is consummated or the Merger Agreement is
terminated. It is therefore expected that the Merger Proposal and the Preferred
Stock Proposal will be approved regardless of the vote of other Axion
stockholders.
In addition, it is a condition to the obligation of BMS to effect the
Merger that no Dissenting Shares be outstanding at the Effective Time. See "The
Merger--Dissenters' Rights".
Rights of Stockholders Following the Merger and Distribution
Upon consummation of the Merger and the Distribution, Former Axion
Stockholders will become stockholders of BMS and AHC. Certain differences exist
between the rights of holders of Axion Common Stock and the rights of holders of
BMS Common Stock and AHC Preferred Stock, respectively, resulting from
differences in the respective Axion, BMS and AHC certificates of incorporation
and bylaws. See "The Transactions" and "Comparison of Certain Rights of Holders
of BMS Common Stock and Axion Common Stock" herein and "Comparison of Certain
Rights of Holders of AHC Preferred Stock and Axion Common Stock" in the
Information Statement attached as Appendix G hereto.
Interests of Certain Persons in the Transactions
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In considering the recommendation of the Axion Board, Axion stockholders
should be aware that certain members of Axion's management and the Axion Board
have certain interests in the Merger and the Distribution that are in addition
to the interests of Axion stockholders generally. These interests include the
following consequences under the Axion 1989 Plan (as defined herein) and the
Axion 1995 Plan (as defined herein) with respect to Axion Options: (i) all Axion
Options that had not previously become exercisable and vested will become fully
exercisable and vested upon the consummation of the Merger; (ii) Axion will
extend loans to each executive officer, in addition to each current employee or
consultant, holding an outstanding option to enable such individual to exercise
in full his or her options; and (iii) each officer who exercises his or her
Axion options will receive in the Merger shares of BMS Common Stock, which stock
will be freely tradable immediately following the consummation of the Merger,
subject only to contractual restrictions on the officer's ability to resell the
BMS Common Stock and the limitations set forth under Rule 145 under the
Securities Act. As of June 30, 1996, options to purchase a total of 1,722,433
shares of Axion Common Stock, at exercise prices ranging from $0.075 to $10.00
per share, were held by 101 Axion employees and consultants.
In addition, OTNC has entered into an employment agreement with David
Levison dated as of August 2, 1996, which agreement becomes effective on the
Closing Date and continues for a period of two years. Pursuant to this
agreement, David Levison will serve as President of OTNC. OTNC has entered into
employment agreements substantially similar to David Levison's (other than
compensation amounts) with Warren Dodge, Bret Brodowy, Michael Cunningham, Lynn
Hammerschmidt and James Adams. Axion has also adopted a severance plan
applicable to certain employees of OTNC.
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that arise by
reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified. See "The Merger--Interests of Certain Persons in the
Transactions" and "Effect of Transactions on Axion Employees and Axion Benefit
Plans".
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THE SPECIAL MEETING
General
This Proxy Statement/Prospectus is being furnished to stockholders of Axion
in connection with the solicitation of proxies on behalf of the Axion Board for
use at the Special Meeting.
At the Special Meeting, (i) stockholders of Axion of record as of the
Record Date will be asked to consider and vote upon the Merger Proposal and (ii)
holders of Axion Preferred Stock of record as of the Record Date will be asked
to consider and vote upon the Preferred Stock Proposal.
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and the Axion stockholders. Accordingly, the Axion
Board has unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger, and recommends that the Axion
stockholders vote FOR adoption and approval of the Merger Proposal and that the
holders of Axion Preferred Stock vote FOR approval of the Preferred Stock
Proposal. See "The Merger--Background and Reasons for the Merger; Recommendation
of the Axion Board".
Each copy of this Proxy Statement/Prospectus mailed to stockholders of
Axion is accompanied by a form of proxy for use at the Special Meeting.
STOCKHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY TO AXION IN THE ENCLOSED, POSTAGE-PAID
ENVELOPE.
This Proxy Statement/Prospectus is also furnished to stockholders of Axion
as the prospectus of BMS relating to the issuance by BMS of shares of BMS Common
Stock in connection with the Merger.
Time, Place and Date
The Special Meeting will be held on [ ], 1996, at 10:00 a.m., local time at
the office of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
legal counsel to Axion, located at 600 Hansen Way, Second Floor, Palo Alto,
California 94304.
Record Date
The Axion Board has fixed the close of business on [ ], 1996, as the record
date (the "Record Date") for determining the Axion stockholders entitled to
notice of and to vote at the Special Meeting. At the close of business on the
Record Date, [ ] shares of Axion Common Stock were outstanding and held by [ ]
holders of record and [ ] shares of Axion Preferred Stock were outstanding and
held by [ ] holders of record.
Vote Required
Approval of the Merger Proposal requires the affirmative vote of (i) at
least a majority of the total number of votes entitled to be cast by holders of
Axion Common Stock and holders of Axion Preferred Stock, voting together as a
single class and (ii) at least a majority of the total number of votes entitled
to be cast by holders of Axion Preferred Stock, voting together as a single
class. Approval of the Preferred Stock Proposal requires the affirmative vote of
least 66-2/3 percent of the total number of votes entitled to be cast by holders
of Axion Preferred Stock, voting together as a single class. It is a condition
to the respective obligations of each party to the Merger Agreement that the
Preferred Stock Proposal be approved by the holders of Axion Preferred Stock. If
the Merger Agreement
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is terminated prior to the Distribution Record Date, the conversion of Axion
Preferred Stock into Axion Common Stock contemplated by the Preferred Stock
Proposal will not occur.
As of the Record Date, directors and executive officers and their
affiliates of Axion beneficially owned an aggregate of [ ] shares of Axion
Common Stock, or approximately [ ]% of the shares of Axion Common Stock
outstanding on such date. As of the Record Date, directors and executive
officers of Axion and their affiliates beneficially owned an aggregate of [ ]
shares of Axion Preferred Stock, or approximately [ ]% of the shares of Axion
Preferred Stock outstanding on such date. As of the Record Date, the total
number of votes entitled to be cast by holders of Axion Common Stock and Axion
Preferred Stock, voting as a single class (with each share of Axion Preferred
Stock having voting power equivalent to that of one share of Axion Common Stock)
was [ ]. As of the Record Date, directors and executive officers of Axion and
their affiliates beneficially owned shares of Axion Common Stock or Axion
Preferred Stock representing an aggregate of [ ]% of the total number of votes
entitled to be cast by all stockholders of Axion, voting as a single class.
As of the Record Date, directors and executive officers of BMS did not
beneficially own any shares of Axion Common Stock or Axion Preferred Stock.
Certain stockholders of Axion which are the beneficial owners, as of the
Record Date, of __________ shares of Axion Common Stock and _________ shares of
Axion Preferred Stock have entered into the Stockholder Agreement pursuant to
which each such stockholder has agreed to, among other things, vote all shares
of Axion Common Stock and Axion Preferred Stock owned by such stockholder in
favor of the Merger Agreement and the transactions contemplated thereby,
including the Merger, and has granted BMS an irrevocable proxy to so vote such
shares. Such shares represent [ ]% of the total number of votes entitled to be
cast by holders of Axion Common Stock and Axion Preferred Stock, voting together
as a single class, and [ ]% of the total number of votes entitled to be cast by
holders of Axion Preferred Stock. Accordingly, the Merger Proposal can be
approved by the affirmative vote of such shares even if all other stockholders
of Axion vote against the Merger Proposal. Also, pursuant to such Stockholder
Agreement, each such holder of Axion Preferred Stock has agreed to vote all
shares of Axion Preferred Stock owned by such stockholder in favor of the
Preferred Stock Proposal and has granted BMS an irrevocable proxy to so vote
such shares. Accordingly, the Preferred Stock Proposal can be approved by the
affirmative vote of such shares even if all other holders of Axion Preferred
Stock vote against the Preferred Stock Proposal. The Stockholder Agreement also
prohibits such stockholders from transferring their shares of Axion Common Stock
or Axion Preferred Stock until the Merger is consummated or the Merger Agreement
is terminated.
In addition, it is a condition to the obligation of BMS to effect the
Merger that no Dissenting Shares be outstanding at the Effective Time. See "Risk
Factors" and "The Merger--Dissenters' Rights".
Voting and Revocation of Proxies
A majority of the shares entitled to vote at the Special Meeting,
represented in person or by proxy, constitutes a quorum. Under the DGCL, in
determining whether the proposal regarding the approval of the Merger has
received the requisite number of affirmative votes, abstentions and broker
non-votes will be counted and will have the same effect as a vote against such
proposal. Holders of record of Axion Common Stock at the close of business on
the Record Date are entitled to one vote at the Special Meeting per share of
Axion Common Stock held. When voting with holders of Axion Common Stock, each
holder of record of any series of Axion Preferred Stock is entitled to the
number of votes equal to the number of shares of Axion Common Stock into which
such holder's shares of such series of Axion Preferred Stock could be converted
at the close of business on the Record Date. As a result, each share of Axion
Preferred Stock will in effect have the voting power of one share of Axion
Common Stock. When voting as a class with other holders of Axion Preferred
Stock, holders of any series of Axion Preferred Stock are entitled to one vote
per share of Axion Preferred Stock held.
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Shares of Axion Common Stock or Axion Preferred Stock represented by
properly executed proxies in the form enclosed with this Proxy
Statement/Prospectus will, unless such proxies have previously been revoked, be
voted in accordance with the instructions indicated in such proxies. To the
extent instructions are not indicated, shares will be voted FOR the Merger
Proposal and, if applicable, FOR the Preferred Stock Proposal and in the
discretion of the proxy holder as to any other matter that may properly come
before the Special Meeting. The Axion Board knows of no business that will be
presented at the Special Meeting other than the matters described in this Proxy
Statement/Prospectus. An Axion stockholder who has given a proxy may revoke such
proxy at any time prior to its exercise at the Special Meeting by (i) giving
written notice of revocation bearing a later date than the proxy to the
Secretary of Axion, (ii) properly submitting to Axion a duly executed proxy card
relating to the same shares bearing a later date or (iii) attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in and
of itself revoke a proxy. All written notices of revocation and other
communications with respect to revocation of proxies by stockholders should be
addressed as follows: Axion Inc., c/o Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 600 Hansen Way, Second Floor, Palo Alto, California
94304, Attention: Steven M. Spurlock, Esq., or hand-delivered to Mr. Spurlock at
the foregoing address, before the vote is taken at the Special Meeting.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE ENCLOSED PROXY
CARD. IF THE MERGER IS CONSUMMATED, STOCKHOLDERS WILL BE SENT A LETTER OF
TRANSMITTAL WITH INSTRUCTIONS FOR SURRENDERING THEIR CERTIFICATES REPRESENTING
SHARES OF AXION COMMON STOCK. See "The Merger--Exchange of Certificates in the
Merger".
Solicitation of Proxies
In addition to mailing this material to stockholders of Axion, Axion has
asked banks and brokers, if applicable, to forward copies to persons for whom
they hold stock of Axion and to request authority for execution of proxies.
Axion will reimburse the banks and brokers for their reasonable out-of-pocket
expenses in doing so. Officers and regular employees of Axion may, without being
additionally compensated, solicit proxies by mail, telephone, telegram or
personal contact. Estimated proxy solicitation expenses of $5,000 will be paid
by Axion in connection with the solicitation of proxies for the Special Meeting.
Axion does not currently intend to employ any other party to assist in the
solicitation process.
Dissenters' Rights
Holders of Axion Common Stock will be entitled to dissenters' rights in
connection with the Merger. It is a condition to the obligation of BMS to
consummate the Merger that no Dissenting Shares be outstanding at the Effective
Time. See "The Merger--Dissenters' Rights" and "Risk Factors".
THE TRANSACTIONS
Pursuant to the transactions described in this Proxy Statement/Prospectus,
BMS will acquire the Retained Business, which consists of (i) OTNC, including
its 50% interest in the Partnership, which distributes cancer pharmaceuticals
and related products to office-based oncologists, and (ii) OPUS, including the
OPUS Station Business, which furnishes automated drug dispensing and inventory
tracking systems to office-based oncology practices.
The acquisition of the Retained Business by BMS will be effected through a
series of sequential transactions, including the Contributions, the Distribution
and the Merger, all as set forth in the Merger Agreement and the Distribution
Agreement. The purpose of this complex structure is to permit the disposition of
the Retained Business
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on a tax-free basis to Axion and its stockholders in a transaction in which
stockholders of Axion will receive BMS Common Stock and will also retain their
proportionate equity interests in the Acquired Business in the form of AHC
Preferred Stock to be received in the Distribution. In order to achieve the
tax-free nature of the sale, Axion (which will then hold only the Retained
Business and certain Retained Liabilities (as defined herein)) will merge with
BMS Sub with Axion as the Surviving Corporation. Accordingly, a "reverse
spinoff" structure was adopted pursuant to which the Acquired Businesses will be
transferred to AHC and its subsidiaries and the AHC Preferred Stock will, prior
to the Merger, be distributed to the stockholders of Axion in the Distribution.
After the Distribution and at the Effective Time, Axion will hold the Retained
Business. BMS will effectively acquire the Retained Business in the Merger.
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The current corporate structure of Axion and its subsidiaries and (to the extent
relevant) BMS and its subsidiaries is as follows:
[Graphic depicting corporate structure of Axion]
Chart depicting the current corporate structure of Axion and its subsidiaries
and (to the extent relevant) BMS and its subsidiaries as follows: Axion
stockholders own stock of Axion. Axion is the parent corporation of (i) AHC,
(ii) OPUS, which contains the OPUS Matrix Business and the OPUS Station Business
and (iii) OTNC, the general partner of OTN. BMS is the parent corporation of
BMOTN, which is the limited partner of OTN.
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The significant sequential transactions that will be effected in order to
accomplish the Contributions, the Distribution and the Merger, all of which will
take place at or shortly before the Effective Time, are briefly described below:
First, pursuant to the Distribution Agreement, the Partnership will
distribute to OTNC, and OTNC will distribute to Axion, an amount in cash
equal to $13,615,147 (the Preference Amount);
Second, each issued and outstanding share of Axion Preferred Stock
will be converted into one fully paid and nonassessable share of Axion
Common Stock, and all Axion Options will be exercised (other than the
Goldberg $10.00 Options, which will not be exercised and will be canceled);
Third, pursuant to the Distribution Agreement, OPUS will contribute
the OPUS Matrix Business to OPUS Sub;
Fourth, pursuant to the Distribution Agreement, OPUS will distribute
all of the stock of OPUS Sub to Axion;
Fifth, pursuant to the Distribution Agreement, Axion will contribute
the stock of OPUS Sub and certain other tangible and intangible assets and
liabilities of Axion and its subsidiaries, including the OnCare Preferred
Stock and an amount in cash equal to the Preference Amount (net of Retained
Cash), but excluding the Retained Business, to AHC;
Sixth, pursuant to the Distribution Agreement, Axion will distribute
to each of its stockholders in the Distribution one share of AHC Preferred
Stock in respect of each share of Axion Common Stock held by such
stockholder on the Distribution Record Date; and
Seventh, immediately after the Distribution, the Merger will be
consummated pursuant to the Merger Agreement.
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Following the Contributions, the Distribution and the Merger, the corporate
structure of Acquired Business and the Retained Business will be as follows:
[Graphic depicting corporate structure of Acquired Business
and Retained Business]
Chart depicting the corporate structure of the Acquired Business and the
Retained Business, following the Contributions, the Distribution and the Merger,
as follows: Axion Stockholders will own 100% of the Preferred Stock of AHC and
will own BMS Common Stock received in the Merger constituting approximately
0.02% of the outstanding shares of BMS Common Stock. AHC will be the parent
corporation of OPUS, which will contain the OPUS Matrix Business. BMS will be
the parent corporation of Axion, which in turn will be the parent corporation of
(i) OPUS, which will contain the OPUS Station Business and (ii) OTNC, which will
be the general partner of OTN. BMS will also be the parent corporation of BMOTN,
which will be the limited partner of OTN.
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THE COMPANIES
Axion
General
Axion was incorporated under the laws of Delaware on July 30, 1987. Axion
is a holding company with three direct wholly owned subsidiaries, OTNC, AHC and
OPUS. OTNC is the general partner of the Partnership, which distributes oncology
drugs and related supplies to office-based oncologists. Axion's principal
business is the distribution of oncology drugs and related supplies to
office-based oncologists. Axion contributed such distribution business to the
Partnership. Such Partnership represents the most significant portion of Axion's
consolidated total assets and revenues. AHC provides cancer-specific managed
care services to cancer care payers and providers. OPUS consists of the OPUS
Station Business, which furnishes automated drug dispensing and inventory
tracking systems to office-based oncology practices, and the OPUS Matrix
Business, which consists of computer software which provides office-based
oncology practices with access to drug and treatment information and the
management information system to support Axion's businesses.
Axion is also the beneficial owner of 2,700,000 shares of OnCare Preferred
Stock. OnCare was formerly a majority owned subsidiary of Axion. In December of
1995, Axion distributed to holders of Axion Common Stock, holders of Axion
Options and holders of Axion Preferred Stock all its holdings of shares of
common stock of OnCare. OnCare is an oncology physician practice management
company.
The Acquired Business, which includes, among other things, the AHC
Business, the OPUS Matrix Business and the OnCare Preferred Stock, will be
distributed to Axion's stockholders prior to the Merger, and, accordingly, is
not described in the remainder of this section (except as the Acquired Business
relates to matters discussed under "--Facilities" and "--Employees" herein). For
further information about the Acquired Business, see the Information Statement
attached as Appendix G hereto.
OTN
In July 1993 Axion entered into a series of agreements with BMS to form the
Partnership. Axion's wholly owned subsidiary, OTNC, is the general partner of
the Partnership. BMS's wholly owned subsidiary, BMOTN, is a limited partner of
the Partnership. Axion contributed its Oncology Therapeutics Network business to
the Partnership and agreed to provide all administrative, operational and other
services necessary to support the Partnership, subject to reimbursement for its
costs by the Partnership. BMS appointed the Partnership as its exclusive sales
agent for BMS oncology products (and any other oncology products that BMS has
the right to sell) to office-based oncologists and agreed to promote the
Partnership's business with its oncology sales force. Each partner also
contributed cash to the Partnership. A management committee retains authority
for major business decisions and currently consists of six members, two
designated by the general partner, two designated by the limited partner and two
designated by mutual agreement of the general partner and the limited partner.
Pursuant to an amendment to the partnership agreement dated as of August 2,
1996, the limited partner, in its sole discretion, at any time prior to October
31, 1996, may designate a seventh member of the management committee at any time
who shall have the deciding vote in the event of a tie vote of the management
committee.
The wholesale market for cancer pharmaceuticals has grown rapidly over
recent years according to industry estimates. The industry has also seen a shift
from the administration of chemotherapy in the hospital setting to the office
setting. The hospital-based oncologists are typically served by drug wholesalers
that provide daily deliveries of large quantities of pharmaceutical products,
including oncology pharmaceuticals, to hospital pharmacies. The office-based
oncologist, lacking a hospital pharmacy and related service and support, faces
significant administrative
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burdens when ordering, stocking and paying for pharmaceuticals. OTN addresses
these needs of the office-based oncologist.
OTN is a leading distributor of oncology drugs and related supplies to
office-based oncologists. OTN provides a full range of oncology products and
supplies from a variety of manufacturers, eliminating the need for its customers
to interact with multiple suppliers. OTN's product catalog has over 700 line
items from over 45 manufacturers. However, as is characteristic of the market
for oncology pharmaceuticals, a small number of products account for a majority
of OTN's net revenues. Specifically, sales of Kytril, Zofran and Neupogen,
supportive care medicines manufactured by SmithKline Beecham PLC, Glaxo-Wellcome
PLC and Amgen, Inc., respectively, accounted for approximately 10%, 16%, and 24%
of OTN's net revenues in 1995. Since the launch of OTN in September 1990, the
annual dollar volume of products shipped by it has grown from approximately
$16.4 million in 1991 to approximately $459 million (including $ million in
shipments of BMS Products by OTN as exclusive sales agent for BMS Products,
which are not included in net revenues of the Partnership) in 1995 and the
number of customers served has grown from approximately 370 in 1991 to
approximately 2,330 in 1995. Axion has conducted its drug distribution business
through the Partnership since August 1993.
OTN's objective is to address the cost containment needs and reduce the
administrative burdens of the office- based oncologist. OTN addresses these
needs by serving as a convenient, cost-effective, single source of supply of
cancer pharmaceuticals, providing reliable, customer-oriented service, and
reducing inventory and other associated carrying costs.
OTN is BMS's exclusive sales agent for BMS oncology products to
office-based oncologists. OTN believes that its extensive customer base, coupled
with its overall competitive pricing and customer service, make it attractive to
drug manufacturers that wish to serve the fragmented office-based oncologist
community through a focused distribution channel. OTN provides services to
manufacturers that include support for product launch, customer specific
marketing programs, product sampling, and rapid market research. These services
are of particular interest to new manufacturer entrants who are interested in
selling products to office-based oncologists but have not yet established
relationships with the medical oncology community.
OTN Operations. The majority of OTN's staff is based at OTN's headquarters
in South San Francisco, California. OTN generates sales principally through
telephone sales, a field sales organization and direct mail. Customers can place
orders through a toll-free number from 5:30 a.m. to 5:30 p.m. Pacific time.
Orders are electronically transmitted to one of two warehouse sites, located in
Delaware and southern California, where orders are picked up, packaged and
shipped. These warehouses are operated by a third party warehousing services
company. OTN maintains inventory levels at these sites sufficient to meet
anticipated demand.
OTN Sales, Marketing and Customer Support. OTN's internal sales force and
customer service personnel consist of approximately 24 individuals who serve and
solicit customers primarily through telephone sales, direct customer contact and
direct mail efforts. In addition, OTN has four national account managers working
in the field whose responsibilities include establishing and maintaining
relationships with the largest accounts nationwide. OTN's internal sales and
service operations build upon and are coordinated with those of the BMS oncology
sales forces. The combined forces of the BMS oncology sales forces and OTN's
sales force provide nationwide coverage of over 2,330 customers and sites via
telephone sales and in-person contacts.
Sales Agency Agreement between BMS and OTN. Under a Sales Agency Agreement
between OTN and BMS, OTN is BMS's exclusive sales agent for sales of BMS
oncology products to office-based oncologists. The Sales Agency Agreement does
not, however, prevent other distributors from reselling BMS oncology products to
office- based oncologists, although BMS is precluded from selling its oncology
products to such distributors at prices below those charged by BMS for BMS
oncology products sold through OTN. OTN facilitates BMS's sales of oncology
products by providing distribution services at competitive prices to
office-based oncologists. Unlike traditional
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distribution arrangements, OTN does not purchase oncology products from BMS.
Instead, OTN receives a commission for BMS products distributed by OTN. BMS
retains the right to control pricing and product-related decisions. Currently,
OTN is responsible for collecting (and financing) the receivables from sales of
BMS products for up to 180 days, and, 60 days after shipment, remits to BMS such
payments less commissions. BMS reimburses OTN for the portion of OTN's financing
costs that relate to the shipment of BMS products. BMS ultimately retains the
collection risk of receivables arising from its product sales. No product
revenues are recorded by OTN in connection with the sale of BMS products. BMS
also reimburses OTN for certain financing costs.
The Partnership is a Delaware limited partnership owned jointly by ONTC and
BMOTN that was formed to distribute oncology products. ONTC is the general
partner of the Partnership and BMOTN is the limited partner. The Partnership
facilitates BMS' sales of oncology products to office-based oncologists. The
Partnership does not purchase oncology products from BMS.
In forming the Partnership, both partners contributed cash, Axion
contributed its ongoing OTN business (excluding any debts or obligations), and
BMS contributed certain of its customer lists. In addition, Axion agreed to
provide to the Partnership, subject to reimbursement by the Partnership, all
administrative, operational and other services necessary to support the
functioning of the Partnership and BMS agreed to provide the promotional support
of its oncology sales forces. Additional capital contributions by the partners
are not required.
OTNC manages the day-to-day operations of the Partnership and a management
committee consisting of representatives of Axion and BMS retains authority for
major business decisions. All obligations of each partner to the other are
unconditionally guaranteed by their respective parent corporations.
The Partnership has a term of 20 years, but can be terminated on either
January 1, 2003 or January 1, 2008 at BMS' option upon at least one year's prior
notice. In addition, the right to terminate the partnership agreement and the
Sales Agency Agreement arises under certain circumstances, including breach,
bankruptcy, insolvency or a change in control of Axion.
In the event the Sales Agency Agreement is terminated for cause, the
partner that elects to terminate is required either to purchase the other
partner's interest, or to force the other partner to purchase the terminating
partner's interest, at fair market value as determined by a nationally
recognized investment banking firm selected by the parties. Under certain
conditions, upon termination of the partnership agreement, the terminating
partner is entitled to purchase the other partner's interest or to require the
other partner to purchase the terminating partner's interest. In addition, in
the event that the Sales Agency Agreement is terminated as a result of a change
in control of Axion, or BMS elects to terminate the Sales Agency Agreement in
2003 or 2008, BMS is required to sell, and Axion is required to buy, BMS'
interest.
OTNC receives a preferential allocation of profits during the first several
years of the term of the Partnership as follows: in 1993, the first $900,000 in
profits would have been allocated to OTNC if the Partnership had earned profits,
with the balance allocated 80% to OTNC and 20% to BMOTN; in 1994, this
preference was $4.9 million with the balance allocated 80:20 in favor of OTNC;
in 1995, the preference was $10.2 million with the balance allocated 80:20; and
in 1996, the preference is $18.75 million with the balance allocated 80:20. The
preferences due are cumulative; any unallocated preference is carried forward
for allocation in later years, together with interest at the prime rate on the
accumulated unpaid preference. The aggregate preference of OTNC over the term of
the Partnership, excluding interest, is $34.75 million. Losses are allocated
equally among the partners, but losses are not allocated to BMOTN to the extent
that such allocation would take BMOTN's capital account to less than zero. In
the future, unless BMOTN makes additional capital contributions or any
Partnership profits are allocated to BMOTN's capital account but not distributed
to OTNC, all losses, if any, will be allocated to OTNC.
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Under the Sales Agency Agreement, the Partnership receives a commission for
BMS products distributed by the Partnership. BMS retains the right to control
pricing and product-related decisions. As of January 1, 1995, the Joint Venture
remits to BMS payment for sales of BMS products within 30 days of the issuance
of an invoice, less commissions. In any event, BMS retains the collection risk
of receivables arising from its product sales.
OPUS Station Business
The OPUS Station Business consists of a computerized drug dispensing and
inventory tracking system that provides secure medication and supply storage,
captures billing information at the time of care, and produces practice-specific
reports on drug usage for office-based oncology practices. The system dispenses
medication stored in the OPUS Station unit ("Opus Station") automatically
reorders inventory when integrated with OTN's ordering system, and produces
billing records and other reports based on patient and drug selection
information input by office staff. The reports generated by the OPUS Stations
provide information on drug usage by physician, patient, diagnosis, and
treatment regimen and can assist practices in evaluating the relative cost of
chemotherapy regimens used within the practice. The OPUS Station is based on
technology licensed from the Pyxis Corporation ("Pyxis") pursuant to an
agreement dated May 5, 1995 (the "Pyxis Agreement"). Under the terms of the
Pyxis Agreement, OPUS acquired the exclusive right from Pyxis to promote and
market its point-of-use systems, or components that make up the OPUS Station
units for use in out-patient oncology practices. In addition, the agreement
provides that OPUS must lease a minimum number of OPUS Station units from Pyxis
upon the terms set forth therein and Pyxis must provide OPUS with service for
such units, the terms of which can be changed from time to time by Pyxis to OPUS
upon 60 days prior written notice. The Pyxis Agreement terminates on December
31, 1997 unless mutually extended by the parties thereto.
As of June 15, 1996, a total of 89 OPUS Stations were in active use at 69
different oncology practices. When an oncology practice orders an OPUS Station,
OPUS Station technicians travel to the installation site, install the machines,
and train the office staff. The OPUS Station units are typically leased to
customers on a month-to-month basis or for an extended term with a 30- or 60-day
notice of cancellation which includes the rental cost of the equipment and all
service.The OPUS Station Business has not had significant revenues from the
rental of equipment and has operated at a loss since inception.
In order to realize the full benefits of OPUS Station (automatic reordering
of inventory and data reports), OPUS Station customers must order most of their
oncology drugs from OTN. Purchases of oncology drugs from OTN by OPUS Station
customers typically exceeds 80% of their total oncology drug purchases.
Facilities
The Partnership currently leases approximately 18,600 square feet of office
space in a building in South San Francisco, California. This facility is leased
through October 2001, and will continue to be leased by the Partnership after
the Merger.
AHC currently occupies office space at 1111 Bayhill Drive, Suite 125, San
Bruno, California. This office space is leased from OnCare, which has an
informal sublease arrangement with AHC. Such office space will continue to be
leased by AHC from OnCare after the Merger.
The principal executive offices of Axion are located at 1111 Bayhill Drive,
Suite 125, San Bruno, California 94066, and its telephone number is (415)
589-5900.
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Employees
As of July 1996, Axion and its subsidiaries had approximately 115
employees. Following the Merger, approximately 46% of these employees will be
employees of AHC or OnCare and approximately 54% of these employees will be
employees of the Surviving Corporation and its subsidiaries. None of the
employees of Axion or its subsidiaries is represented by a labor union or is
party to a collective bargaining agreement. Axion and its subsidiaries have not
experienced any work stoppages and consider their relations with their employees
to be good.
Trademarks
Oncology Therapeutics Network(R), Axion(R), and the Axion logo are
registered trademarks of Axion, and Axion HealthCare(TM), OnCare Practice
Utilization System(TM), OPUS(TM), and OPUS Health Systems(TM) are trademarks of
Axion. Pursuant to a Trademark License Agreement, BMS has licensed to the
Partnership the use of certain BMS trademarks and tradenames. This Trademark
License Agreement will terminate upon the Effective Time of the Merger.
Following the Effective Time, AHC shall retain all rights to the Axion trademark
and tradename and the Surviving Corporation shall amend its Certificate of
Incorporation to change its name.
BMS
BMS was incorporated under the laws of the State of Delaware in August 1933
under the name Bristol-Myers Company as successor to a New York business started
in 1887. In 1989, the Bristol-Myers Company changed its name to Bristol-Myers
Squibb Company, as a result of a merger. BMS, through its divisions and
subsidiaries, is a major producer and distributor of pharmaceutical products,
medical devices, nonprescription health products, toiletries and beauty aids.
BMS's principal executive offices are located at 345 Park Avenue, New York,
New York 10154-0037 and its telephone at such offices is (212) 546-4000.
To obtain additional information concerning the business of BMS, including
audited and unaudited financial information, see "Available Information" and
"Incorporation of Certain Information by Reference".
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF AXION
(in thousands of dollars)
The following discussion contains forward-looking statements. Axion's
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Proxy
Statement/Prospectus, particularly in "Risk Factors".
Overview
Axion's principal business is the distribution of oncology drugs and
related supplies (collectively, "oncology products") to office-based
oncologists. In August 1993, to expand its distribution business, Axion formed
the Partnership with BMS. Axion contributed its existing distribution business
to the Partnership and BMS agreed to provide the promotional support of its
oncology products sales forces and also appointed the Partnership the exclusive
sales agent to U.S. office-based oncologists for BMS' oncology products. BMS
pays the Partnership a commission based upon sales of BMS oncology products
which commission is included in the Partnership's net revenues. No product sales
revenues are recorded by the Partnership in connection with its role as agent
for the sale of BMS oncology products. However, the Partnership assumes
responsibility for collecting (and financing) the receivables from sales of BMS
oncology products for up to 180 days and records the related accounts receivable
during that period. BMS assumes all risk of loss for amounts billed related to
sales of its products by the Partnership as agent.
Axion consolidates the Partnership in the Axion financial statements. The
Partnership represents the most significant portion of Axion's consolidated
total assets and revenues and accounts for all of Axion's income.
Since its inception, Axion has engaged in several other oncology-focused
businesses. None of those businesses has achieved substantial revenues or
operated profitably to date. Those businesses include: its oncology clinical
studies activity started in 1987, its oncology drug development activities
started in 1992 and terminated in 1993, the development of its oncology disease
management programs and its oncology information systems efforts, begun in 1994,
and its oncology physician practice management business started in 1995 and
subsequently distributed to Axion's stockholders (except for the AHC Preferred
Stock held by Axion).
AHC was formed in late 1994 to carry on the clinical studies programs begun
by Axion in 1987 and to continue the development of the disease management
activities arising from the clinical studies. AHC will contract with both payers
and providers to provide them with services and information tools specifically
designed to assist them in better managing their cancer care from both a
clinical quality and cost standpoint.
OPUS was formed in late 1994 to own and operate all of Axion's information
technology assets and resources including its OPUS Station and OPUS Matrix
product lines and Axion's management information systems operations, principally
encompassed within an agreement with Electronic Data Systems Corporation.
OnCare was formed in 1995 to acquire and manage oncology physician
practices. On December 31, 1995, Axion distributed all of its holdings of the
common stock of OnCare to its stockholders, including the holders of shares of
preferred and common stock and the holders of options and other rights to
acquire shares of common stock, and OnCare ceased to be a consolidated
subsidiary of Axion. Axion retained a $3,500 investment in OnCare's Series A
Redeemable Preferred Stock and in early 1996 increased that investment to
$13,500.
The comments which follow relate to Axion's consolidated results of
operations and liquidity and capital resources. Included in the consolidated
operating results are combined amounts for OnCare in 1995, and AHC and OPUS
(including the OPUS Station and OPUS Matrix businesses and its management
informations systems for
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Axion's businesses) for the year ended December 31, 1995 and the three months
ended March 31, 1995 and 1996. Net revenues and net loss amounts of the combined
OnCare, AHC and OPUS Matrix for the year ended December 31, 1995 are as follows:
$3,615 and $2,094. Net revenues and net loss amounts for AHC and OPUS Matrix for
the three month periods ended March 31, 1995 and 1996 are as follows: $127 and
$467; and $45 and $607, respectively.
Results of Operations
Three years ended December 31, 1995
Revenues increased in excess of $70,000 annually in each of the past two
years, from $56,052 in 1993 to $126,369 in 1994 to $198,950 in 1995. Almost all
of these revenues have been from the distribution of oncology products. Included
in the revenues have been commissions from BMS to the Partnership of $1,440 in
1993, $6,527 in 1994 and $9,412 in 1995 as compensation for the Partnership's
services as exclusive sales agent for BMS oncology products. No product sales
revenues are recorded by the Partnership in connection with its role as agent
for the sale of BMS oncology products. The substantial increases in revenues,
including BMS commissions, in each of 1994 and 1995 were attributable
principally to a continued increase in product shipments as a result of an
increase in the penetration of new and existing customer accounts and, to a
lesser degree, an increase in the number of its customers. The balance of such
increases are attributable to an increase in the price of its products, which
typically reflect a pass-through of manufacturers' price increases to the
Partnership. There can be no assurance that future growth, if any, will continue
at the rates for prior periods.
Total costs and expenses in absolute amounts have increased from $59,982 in
1993 to $122,937 in 1994 to $189,741 in 1995 and as a percentage of net revenues
represented 107%, 97% and 95% in 1993, 1994 and 1995 respectively. The purchase
of oncology drugs and related products represents the principal portion of cost
of revenues. The Partnership endeavors to maintain relatively stable mark-up
percentages over purchase cost in establishing selling prices. Warehouse and
distribution costs represent a lesser portion of the total cost of revenues, but
the principal reason for the downward trend in cost of revenues, as greater
shipment volumes have allowed the Partnership to drive down its relative
warehouse and distribution costs.
Sales and marketing costs as well as general and administrative costs have
declined on a relative basis over the three year period as a result of the
oncology products distribution business ability to leverage its existing
infrastructure over greater volumes of shipments. Sales and marketing expenses
as a percentage of net revenues decreased from 3% in 1993 to 2% in 1994 and 1.1%
in 1995. General and administrative expenses as a percentage of net revenues
decreased from 10% in 1993 to 7% in 1994 and 6% in 1995.
Axion incurred costs of $1,607 for drug development in 1993 and terminated
its drug development program in August 1993. See Note 6 of Notes to Consolidated
Financial Statements on F-13.
In 1993, Axion incurred a loss from operations of $3,930. By 1994, with the
substantial increase in net revenues and the beneficial effects of increasing
scale of operations, Axion reported income from operations of $3,432, an
improvement of $7,362. In 1995, there was further improvement, with income from
operations increasing by $5,777 to $9,209. All of the income from operations in
each of 1994 and 1995 has been attributable to the oncology products
distribution business. Axion's other businesses (OPUS, AHC and OnCare) have
operated at a loss.
Other expense, net was $36 in 1993, $2,004 in 1994 and $135 in 1995. These
amounts of other expenses, net and the significant increase in the 1994 amount
are in substantial part the result of the effects of an arrangement for the sale
of Partnership accounts receivable, which began with the formation of the
Partnership in August 1993 and extended through September 1994. To facilitate
the provision of credit to customers and to reduce the requirement for further
working capital financing, the Partnership and BMS entered into agreements with
General Electric Capital
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Corporation ("GECC") for the sale of eligible receivables (both BMS and non-BMS
product related), subject to a 25% cash holdback by GECC of the uncollected
balance. Proceeds from the sale of BMS and non-BMS product receivables were
remitted directly by GECC to the Partnership, less the holdback. The Partnership
was not required to pay BMS for BMS related product amounts for a period of 60
days. As a result, during this one year period, the Partnership had net funds
available for investment and recognized interest income. Axion reported interest
income of $490 in 1993, $1,306 in 1994 and $756 in 1995. Interest income varies
from year to year as a result of the amount of cash invested from operations,
typically on a short-term basis. GECC fees, less reimbursements from BMS of a
portion thereof, were $1,407 in 1993 and $2,945 in 1994. These fees were
reported as other nonoperating expense in those years. Axion reported interest
expense of $115 in 1993, $365 in 1994 and $1,037 in 1995. Interest expense
increased significantly from 1994 to 1995 as a result of the termination of the
GECC agreements and the replacement thereof with, for the period from September
1994 through January 1994, bridge loans, initially from both Axion and BMS but
eventually from BMS alone, and then in January 1995 a bank line of credit
facility for up to $50 million, which financed increased borrowings to fund
working capital requirements arising from increased revenue levels.
Also included in the $36 of other expense, net in 1993 was income of $996,
classified as minority interest and representing BMS's allocated share (50%) of
the Partnership's net loss for the period from inception of the joint venture in
August 1993 through December 31, 1993. The Partnership operated profitably after
1993 and all of those profits were allocated to Axion's interest (none to BMS)
under the preferential allocation formula in the Partnership Agreement.
In 1993, Axion reported a loss (without income tax benefit) of $3,966. In
1994, Axion reported $1,428 of income before income taxes and the same amount of
net income. No income tax provision was necessary in 1994 because of the
availability of previously unrecognized net operating loss carryovers. In 1995,
income before provision for income taxes increased $7,646 to $9,074, due to a
$5,777 increase in operating income, which resulted from growth in revenues and
associated economies of increased scale, and a $1,869 reduction in net other
expense, primarily due to the termination of the arrangement for sale of
receivables to GECC. A $1,187 provision for income taxes in 1995 reduced net
income in 1995 to $7,887. The 13% effective rate of the income tax provision in
1995 reflected the remaining benefit from previously unrecognized net operating
loss carryovers which were fully utilized in 1995.
Three months ended March 31, 1996 and 1995
Revenues increased from $40,442 in the 1995 period to $60,443 in the 1996
period. Substantially all of the revenues were from the Partnership's
distribution of non-BMS oncology products and from commissions ($1,918 in the
1995 period; $2,481 in the 1996 period) as exclusive sales agent for BMS
oncology products. The increase in revenues is attributable principally to a
continued increase in product shipments as a result of an increase in the
penetration of new and existing customer accounts and, to a lesser degree, an
increase in the number of its customers. The balance of such increases is
attributable to an increase in the price of its products, which typically
reflect a pass-through of manufacturers' price increases to the Partnership.
Costs and expenses, representing primarily the cost of revenues, increased
in absolute amounts in the 1996 period, as a result of the significant increase
in product distribution revenues. Absolute amounts of sales and marketing
expense and general and administrative expense were approximately the same in
the 1995 and 1996 periods. Total costs and expenses in absolute amounts were
$39,188 in the 1995 period and $57,359 in the 1996 period and, as a percentage
of net revenues, were 97% in the 1995 and 95% in the 1996 periods.
Income from operations increased from $1,254 in the 1995 period to $2,904
in the 1996 period. The increase was attributable primarily to the substantial
increase in distribution revenues for non-BMS oncology products.
Other income and expense, net was nominal in amount in each period.
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Income before income taxes increased from $1,296 in the 1995 period to
$2,839 in the 1996 period.
Net income increased from $1,200 in the 1995 period (after provision for
income taxes at a 7% effective rate, which reflects the remaining benefit of net
operating loss carryovers) to $1,741 in the 1996 period (after provision for
income taxes at a 39% effective rate). No further previously unrecognized net
operating loss carryovers were available in 1996, causing the effective rate of
the income tax provision to be a normal rate in the 1996 period.
Liquidity and Capital Resources
Prior to the formation of the Partnership in July 1993, Axion financed its
operating activities primarily from five series of preferred stock, the issuance
of which had resulted in $17,248 in net proceeds to Axion. Axion also had
borrowed moderate amounts from time to time under bank credit lines to meet its
financing needs. In 1993, Axion increased its borrowings under its then bank
credit lines from $1,400 to $3,939 and then repaid the entire $3,939. Axion
operated at a loss through 1993, with an accumulated deficit of $4,743 at
December 31, 1992 and a loss of $3,966 in 1993, increasing the accumulated
deficit to $8,709 at December 31, 1993.
With the formation of the Partnership in July 1993, there was a need for
substantially increased financial resources, including additional borrowing
capacity. To facilitate the extension of credit to customers for BMS oncology
products, in 1993 the Partnership agreed to sell both BMS and non-BMS product
receivables to GECC, subject to a 25% cash holdback with respect to uncollected
amounts. As part of the Partnership arrangements, BMS also granted the
Partnership 60-day terms for payment to BMS for BMS products. In September 1994,
the arrangement with GECC was terminated and BMS provided interim financing
under a short-term $30,000 secured note agreement. Also in 1994, Axion received
$5,744 in net proceeds from issuance of a sixth series of preferred stock. In
January 1995, the Partnership arranged for a revolving bank credit line of
$50,000, subject to renewal annually, with borrowings secured by the
Partnership's accounts receivable and inventories. The $30,000 BMS short-term
note was repaid from borrowings under the $50,000 revolving credit line. From
January 1995 to date, the ongoing financing needs have been provided by the
$50,000 bank credit line. At December 31, 1995, the borrowing under the
revolving credit line was $35,617.
Axion has been profitable since 1994 with net income of $1,428 in 1994,
$7,887 in 1995 and $1,741 in the three months ended March 31, 1996. At December
31, 1995 cash, cash equivalents and short-term investments amounted to $13,522.
At March 31, 1996 these same items amounted to $7,907 reflecting the use of
$10,000 during the quarter for the additional investment in OnCare's Series A
redeemable preferred stock. At December 31, 1995 and March 31, 1996, the
Partnership also had available in excess of $14,000 and $14,000, respectively,
which had not been drawn upon under the $50,000 revolving credit line. The
revolving credit line has been extended through December 31, 1996.
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THE MERGER
This section of the Proxy Statement/Prospectus describes certain aspects of
the proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference. As
used in this Proxy Statement/Prospectus, the "Retained Company" or the "Retained
Companies", as the case may be, means Axion, together with its subsidiaries,
OTNC, OPUS and the Partnership, which collectively will own and conduct the
Retained Business at the Effective Time. All Axion stockholders are urged to
read the Merger Agreement in its entirety.
Background and Reasons for the Merger; Recommendation of the Axion Board
Axion's management regularly reviews its current business strategies and
evaluates new opportunities.
In 1994, Axion determined that there were significant opportunities to
build on its relationships with oncologists to develop a cancer disease
management services business (combined with oncology information services).
In early 1995, certain customers of Axion's OTN distribution business
reduced their purchases from OTN due to the customers' perception that a
conflict existed between the OTN distribution business, on the one hand, and the
cancer disease management services business, on the other hand. Concerns about
this perceived conflict were manifested most strongly by oncology physician
practice management ("PPM") groups, who indicated that they viewed Axion as a
competitor or potential competitor.
As a result, Axion management became increasingly concerned that any
conflict or perceived conflict between its OTN business and its cancer disease
management services business would prove detrimental to the business and
prospects of OTN. In the third quarter of 1995, the Axion Board instructed
management to consider strategic alternatives to address the conflict issue.
In October 1995, Axion engaged Alex. Brown & Sons Incorporated ("Alex.
Brown") to assist Axion in exploring and effecting strategic alternatives for
its OTN business. In consultation with Alex. Brown, Axion management recommended
separating the OTN business from Axion's other businesses. Three alternatives
for accomplishing this separation were recommended: (1) an initial public
offering of OTNC's common stock; (2) a sale of Axion's interest in OTN to
another company; and (3) a sale of Axion's interest in OTN to its joint venture
partner, BMS. Each of these alternatives would have alleviated the perceived
conflict. Axion decided to attempt to move forward simultaneously on each of
these three recommended alternatives in an effort to determine which path would
result in the maximum return to Axion's stockholders. Axion did not consider it
desirable to discontinue its cancer disease management business, principally AHC
and OnCare, in light of the significant investments that Axion had made at that
time in such business and its view of the opportunities associated with such
business.
As part of the original negotiation and establishment of the Partnership in
1993, BMS as a limited partner was granted certain rights with respect to the
management and operations of the Partnership, as well as certain protections
against a change in control of Axion, OTNC or the Partnership. The change of
control protections give BMS the right to terminate the OTN Partnership
Agreement in the event of a change of control of OTNC or a sale by OTNC of its
interest in the Partnership unless BMS consents to such change in control. BMS
also has the right to terminate the Sales Agency Agreement (pursuant to which
OTN was appointed by BMS as its exclusive sales agent for sales of oncology
drugs and biologics to office-based oncologists) in the event of a change in
control of Axion. A termination of the Sales Agency Agreement would result in
the winding up of the Partnership. Accordingly, implementation of any of Axion's
alternatives required the consent of BMS. In October 1995, Axion commenced
discussions with BMS regarding the prospect of an initial public offering of
OTNC's common stock or, alternatively, the sale of Axion's interest in the
Partnership.
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In October 1995, Axion and Alex. Brown began preparation of a registration
statement for a public offering of OTNC common stock. BMS was willing to
consider a public offering of OTNC only if BMS would retain its existing
contractual rights with respect to the management and operations of the
Partnership. Alex. Brown advised Axion that it would be necessary for BMS to
give up certain of such existing contractual rights in order to obtain the
desired valuation from public market investors. As a result, Axion concluded,
based upon advice from Alex. Brown, that a public offering was not feasible
under the existing circumstances. The public offering was abandoned in late
1995.
In December 1995, BMS provided Axion with a non-binding indication of
interest with respect to the acquisition of Axion's interest in the Partnership.
Based on discussions with Alex. Brown, Axion concluded that the purchase price
involved was below the value of its interest in OTN.
Concerns related to the perceived conflict between the OTN business and
Axion's cancer disease management businesses continued during the second half of
1995, particularly because during that period OnCare progressed from the
development stage to the commencement of operations through the acquisition in
August 1995 of an oncology practice group. As a result, Axion determined to
distribute all its holdings of OnCare common stock to stockholders of Axion. The
distribution was completed effective as of December 31, 1995. In February and
March of 1996, Axion invested an additional $10 million in OnCare Preferred
Stock. However, Axion retained a significant economic stake in OnCare and had
substantially overlapping stockholders and senior management, and the perception
of a conflict by OTN's customers continued.
In January 1996, on behalf of Axion, Alex. Brown initiated contacts with a
number of potential acquirors of the OTN business. Over the next several months,
these contacts resulted in preliminary non-binding indications of interest from
a number of potential third-party acquirors. During the first and second
quarters of 1996, Axion engaged in preliminary discussions, and exchanged due
diligence materials, with a number of potential third-party acquirors.
Acquisition discussions also continued in 1996 with BMS. In January 1996
the discussions with BMS were expanded to include purchasing Axion's interest in
both OTN and the OPUS Station business.
On April 1, 1996, BMS made a written non-binding proposal to acquire
Axion's interest in OTN and the OPUS Station business on terms significantly
more favorable to Axion and its stockholders than had been previously indicated
by BMS. Negotiations ensued during April and May 1996, during which time Axion
also received other non-binding indications of interest from third parties.
However, any sale of OTN to a third party would have triggered the right of BMS
to terminate the OTN Partnership Agreement and/or the Sales Agency Agreement,
and all proposals received by Axion were made subject to or predicated on the
continuation of the Partnership Agreement and Sales Agency Agreement
arrangements with BMS. Axion believed that none of the potential third-party
acquirors would be willing to acquire its OTN distribution business without the
benefit of the existing contractual arrangements with BMS. During the course of
these negotiations, BMS indicated to Axion that it was BMS's intent to acquire
Axion's interest in OTN and that BMS was not willing to commit that it would not
exercise its right to terminate these Agreements in the event of a sale of
Axion's interest in OTN to a third party. In late May 1996, BMS again increased
its proposed purchase price and agreed to a transaction structure proposed by
Axion designed to make the transaction tax-free to Axion and its stockholders.
BMS also agreed to increase the amount of cash BMS had initially proposed be
distributed from the Partnership to Axion which would be available to fund the
development and growth of the AHC business to be distributed to Axion's
stockholders. Axion and BMS entered into a letter of intent on June 20, 1996,
and the Merger Agreement was signed on August 2, 1996.
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In evaluating the proposed Merger, the Axion Board discussed and considered
a variety of factors in order to make a determination of what is in the best
interests of Axion and the Axion stockholders. Specifically, the Axion Board
considered:
o The continuing need to take action to alleviate the perceived conflict
between Axion's distribution business and the cancer disease
management services business, including Axion's continued relationship
with OnCare, in order that such conflict not be detrimental to the
business and prospects of the OTN business.
o Axion's desire to pursue its cancer disease management services
business, including Axion's continued relationship with OnCare,
particularly in light of the significant investments made to date by
Axion in this business and the Axion Board's view of the opportunities
associated with this business.
o The value to be provided to Axion stockholders as a result of their
receipt of shares of BMS Common Stock in the Merger, including the
tax-free nature of the proposed transaction and the liquidity afforded
to Axion's stockholders by an investment in BMS Common Stock.
o The indemnification obligations that Axion's stockholders would have
to BMS in connection with the transaction and the limitation of such
obligations, except in certain limited circumstances, to the
$5,000,000 of BMS Common Stock held in escrow.
o The opportunity for Axion's stockholders to continue to participate on
an equity basis in the growth and development of the cancer disease
management services business, including through Axion's investment in
the OnCare Preferred Stock, as a result of the stockholders' receipt
of shares of AHC Preferred Stock in the Distribution.
o The cash to be provided to AHC in connection with the transaction to
support AHC's operations and development after giving effect to the
$5,000,000 of AHC cash to be held in escrow to secure AHC's
indemnification obligations to BMS and the uncapped nature of certain
of those obligations.
o The viability of other alternatives or potential transactions in light
of the terms of the OTN Partnership Agreement and the Sales Agency
Agreement and the history of Axion's discussions with BMS and other
potential third-party acquirors, including BMS's willingness to
consider an initial public offering of OTNC's Common Stock only if BMS
would retain its existing negotiated rights with respect to the
management and operations of the Partnership and BMS's expressed
intent to acquire Axion's interest in OTN and its unwillingness to
commit that it would not exercise its right to terminate the OTN
Partnership Agreement and the Sales Agency Agreement in the event of a
sale of Axion's interest in OTN to a third party and the likely
unwillingness of third parties to proceed with any transaction if the
existing contractual arrangements with BMS were not in place.
Based on the foregoing, the Axion Board concluded that a sale of its
interest in the Partnership was necessary to alleviate the ongoing conflict
issue and permit the continued development and growth of its cancer disease
management services business and that the proposed transaction with BMS was the
best alternative available to Axion and its stockholders and represented a fair
price to Axion stockholders.
The Axion Board believes that the terms of the Merger are fair to, and in
the best interests of, Axion and Axion stockholders. The Axion Board has
unanimously approved the Merger Agreement and the transactions contemplated
thereby, including the Merger, and recommends that Axion stockholders vote FOR
approval of the Merger Proposal and that the holders of Axion Preferred Stock
vote FOR approval of the Preferred Stock Proposal.
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BMS Reasons for the Merger
BMS believes that the separation of the OTN distribution business from the
AHC Business and Axion's investment in OnCare will protect and enhance the value
of BMS's existing investment in the Partnership by eliminating any conflict that
may have been perceived by office-based oncology practices or by PPMs that
manage (and control purchasing for) office-based oncology practices. BMS
believes the acquisition of the remaining equity interest in OTN, a leading
distributor of cancer pharmaceuticals and related products to office-based
oncology practices, will allow BMS to expand the quality of services provided by
BMS to office-based oncology practices.
Terms of the Merger
The Merger
At the Effective Time, BMS and Axion will consummate the Merger, in which
BMS Sub will be merged with and into Axion. Axion will be the Surviving
Corporation in the Merger, and the separate existence of BMS Sub will cease.
Certificate of Incorporation and By-Laws
The Merger Agreement provides that the Certificate of Incorporation of
Axion (the "Axion Certificate of Incorporation") will be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law. The By-laws of Axion, as amended and
restated (the "Axion By-laws"), in effect at the Effective Time will be the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
Directors and Officers
The directors of BMS Sub at the Effective Time will be the directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
The officers of BMS Sub at the Effective Time will be the officers of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may be.
Conversion of Axion Common Stock in the Merger
Pursuant to the Merger Agreement, at the Effective Time, each issued and
outstanding share of Axion Common Stock (other than any shares of Axion Common
Stock owned by Axion or any subsidiary of Axion or BMS or any wholly owned
subsidiary of BMS and any Dissenting Shares) will be converted into the right to
receive the Conversion Number of fully paid and nonassessable shares of BMS
Common Stock (the "Merger Consideration"). The "Conversion Number" will be equal
to the quotient of (a)(i) $86,000,000 divided by (ii) the Average Value of BMS
Common Stock divided by (b) the number of shares of Axion Common Stock
outstanding immediately prior to the Effective Time (calculated on a fully
diluted basis assuming each share of Axion Preferred Stock outstanding
immediately prior to the Effective Time has been converted in accordance with
its terms into one share of Axion Common Stock and all Axion Options outstanding
immediately prior to the Effective Time have been exercised or canceled and the
related subject shares (other than with respect to canceled Axion Options) of
Axion Common Stock are outstanding (collectively, the "Diluted Share
Assumption")). The term "Average Value of BMS Common Stock" means an amount
equal to the average of the per share closing prices of BMS Common Stock as
reported on the NYSE Tape for the 10 consecutive full NYSE trading days ending
on the fifth full NYSE trading day immediately preceding the Effective Time;
provided that (A) if the BMS Board declares a cash dividend on the outstanding
shares of BMS Common Stock
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having a record date after the Effective Time but an ex-dividend Ex-Date that
occurs during the averaging period, then for purposes of computing the Average
Value of BMS Common Stock, the closing price on the Ex- Date and any trading day
in the averaging period after the Ex-Date will be adjusted by adding thereto the
amount of such dividend and (B) if the BMS Board declares a cash dividend on the
outstanding shares of BMS Common Stock having a record date before the Effective
Time and an Ex-Date that occurs during the averaging period, then for purposes
of computing the Average Value of BMS Common Stock, the closing price on any
trading day before the Ex-Date will be adjusted by subtracting therefrom the
amount of such dividend. Notwithstanding anything to the contrary contained in
the Merger Agreement, in the event that as of the Closing Date the Average Value
of BMS Common Stock is less than the Minimum Price, then solely for the purposes
of calculating the Merger Consideration, the Average Value of BMS Common Stock
will be deemed to be the Minimum Price, and in the event that as of the Closing
Date the Average Value of BMS Common Stock is greater than the Maximum Price,
then solely for the purposes of calculating the Merger Consideration, the
Average Value of BMS Common Stock will be deemed to be the Maximum Price. If
prior to the Effective Time, the BMS Board declares a stock split, stock
combination, stock dividend or other non-cash distribution on the outstanding
shares of BMS Common Stock, then the Minimum Price and Maximum Price (and if the
Ex-Date for such event occurs during the averaging period, the Average Value of
BMS Common Stock) will be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options, resulting in an aggregate of
9,977,756 shares of Axion Common Stock outstanding), and assuming an Average
Value of BMS Common Stock equal to $87.08 (the average per share closing price
of BMS Common Stock for the 10 full NYSE trading days ending on the first full
NYSE trading day immediately preceding the date hereof), the Conversion Number
would be 0.099 and the aggregate market value of BMS Common Stock to be received
by holders of Axion Common Stock in the Merger would be approximately $86
million, or approximately $8.62 per share of Axion Common Stock. However, the
Average Value of BMS Common Stock is determined as of five full NYSE trading
days immediately preceding the Effective Time, at which time the market value of
BMS Common Stock may be less than the Minimum Price (or greater than the Maximum
Price), and the number of issued and outstanding shares of Axion Common Stock is
determined as of immediately prior to the Effective Time (which date will be
after the date of the Special Meeting). Therefore there can be no assurance that
these assumptions will be true as of the Effective Time, and the Conversion
Number may be substantially less or greater than 0.099, and the aggregate market
value of BMS Common Stock to be received by holders of Axion Common in the
Merger may be substantially less or greater than $86 million, or approximately
$8.62 per share. Under the terms of the Merger Agreement, Axion does not have
the right to decline to consummate the Merger solely because the market value of
BMS Common Stock immediately prior to the Effective Time is substantially less
than the Minimum Price. Therefore, if the Merger is authorized and all other
conditions to the Merger are satisfied or waived on or prior to the Effective
Time, Axion stockholders will assume the risk of a decline in the market value
of BMS Common Stock below the Minimum Price after the date of the Special
Meeting.
The term "Axion Expenses" will mean all out-of-pocket fees and expenses
incurred or to be incurred by or on behalf of Axion or any of its subsidiaries
in connection with the Merger, the Distribution or the consummation of any of
the transactions contemplated by the Merger Agreement and the Documents and the
negotiation, preparation, review and delivery of the Merger Agreement and the
agreements contemplated thereby, including all Axion's expenses incurred or to
be incurred by Axion or any such subsidiary in connection with printing and
mailing the documents filed or required to be filed by AHC (including the
Information Statement and a no-action letter to the Commission regarding
inclusion of certain pro forma financial statements for Axion and its
subsidiaries following the Distribution) with the Commission or any state
securities commission or otherwise required to be provided or delivered to the
stockholders of Axion or, following the Distribution, AHC, in connection with
the distribution of shares of AHC Preferred Stock in connection with the
Distribution (collectively, the "Required AHC Documents") and, subject to
certain provisions of the Merger Agreement, this
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Proxy Statement/Prospectus and the Form S-4 and all fees and expenses incurred
or to be incurred by Axion or any such subsidiary of accountants, legal counsel,
investment bankers and other advisors. The term "Excess Axion Expenses" will
mean all Axion Expenses in excess of $2,000,000.
Cash in Lieu of Fractional Shares
No fractional shares of BMS Common Stock will be issued in the Merger. The
Merger Agreement provides that each Axion stockholder who otherwise would have
been entitled to receive a fraction of a share of BMS Common Stock (after taking
into account all Certificates (as defined herein) registered to such holder)
will receive, in lieu thereof, cash (without interest) in an amount, less the
amount of any withholding taxes which may be required thereon, equal to such
fractional part of a share of BMS Common Stock multiplied by the per share
closing price of BMS Common Stock as reported on the NYSE Tape on the full NYSE
trading day immediately preceding the Closing Date.
Effective Time; Closing
As soon as practicable following the satisfaction or waiver of the
conditions of the Merger Agreement, BMS, BMS Sub and Axion will file the
Certificate of Merger executed in accordance with the relevant provisions of the
DGCL and will make all other filings or recordings required under the DGCL. The
Merger will become effective and the Effective Time will occur immediately
following the Distribution, upon the filing of the Certificate of Merger with
the Delaware Secretary of State or at such time thereafter as is provided in the
Certificate of Merger. The Merger Agreement provides that the Closing will take
place on a date to be specified by the parties which date will be no later than
the first business day after satisfaction of the conditions to the Merger
Agreement, unless another date is agreed to in writing by BMS, BMS Sub and
Axion.
Exchange of Certificates in the Merger
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder becoming a party
to and bound by the Indemnification Agreement, Tax Matters Agreement and Escrow
Agreement and will result in the irrevocable appointment of AHC as each such
Former Axion Stockholder's agent with respect to all matters arising under such
agreements.
As soon as reasonably practicable after the Effective Time, BMS will cause
the exchange agent to mail to each holder of record of a certificate or
certificates whose shares were converted into the right to receive shares of BMS
Common Stock (i) the Letter of Transmittal and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of BMS Common Stock. Upon surrender of a Certificate for
cancelation to the exchange agent, together with the Letter of Transmittal, duly
executed, and such other documents as may reasonably be required by the exchange
agent, the holder of such Certificate will be entitled to receive in exchange
therefor a certificate representing that number of whole shares of BMS Common
Stock which such holder has the right to receive pursuant to the provisions of
the Merger Agreement (which, for the avoidance of doubt, will not include the
number of shares of BMS Common Stock that will be deemed to have been deposited
in escrow by such holder in accordance with the provisions of the Merger
Agreement), and the surrendered Certificate will be canceled. AXION STOCKHOLDERS
ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES REPRESENTING OUTSTANDING
SHARES OF AXION COMMON STOCK FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL FROM BMS. Until surrendered, each Certificate will be deemed at any
time after the Effective Time to represent only the right to receive upon
surrender of the certificate representing shares of BMS Common Stock and cash in
lieu of any fractional shares of BMS Common Stock. No interest will be paid or
will accrue on any cash payable in lieu of any fractional shares of BMS Common
Stock.
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No dividends or other distributions with respect to BMS Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of BMS Common Stock
represented thereby, and no cash payment in lieu of fractional shares will be
paid to any such holder until the surrender of such Certificate in accordance
with the provisions of the Merger Agreement. Following surrender of any such
Certificate, there will be paid to the holder of the Certificate representing
whole shares of BMS Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of cash payable in lieu of any
fractional shares of BMS Common Stock to which such holder is entitled and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of BMS Common
Stock less the amount of any withholding taxes which may be required thereon and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but prior to such
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of BMS Common Stock, less the amount of any withholding
taxes which may be required thereon.
See "Risk Factors--Indemnification Obligations of Former Axion
Stockholders and AHC and Certain of its Subsidiaries" for a discussion of
certain other matters relating to the Letter of Transmittal.
After the Effective Time, there will be no further transfers on the stock
transfer books of Axion.
Indemnification Matters; Escrow; Appointment of AHC as Representative
Execution and delivery of the Letter of Transmittal by each Former Axion
Stockholder will result in each such Former Axion Stockholder becoming a party
to and bound by the Indemnification Agreement, Tax Matters Agreement and Escrow
Agreement and will result in the irrevocable appointment of AHCas each such
Former Axion Stockholder's agent with respect to all matters arising under such
agreements. See "Risk Factors-Indemnification Obligations of Former Axion
Stockholders and AHC and Certain of its Subsidiaries". Immediately following the
Effective Time of the Merger Former Axion Stockholders will be required to place
the Escrowed Shares and AHC will be required to place the Escrowed Cash in an
escrow account to secure certain obligations of such Former Axion Stockholders
and AHC and its subsidiaries to indemnify BMS and its subsidiaries. There can be
no assurance as to whether all or any portion of such Escrowed Shares will
eventually be released to such Former Axion Stockholders or as to whether all or
any portion of such Escrowed Cash will eventually be released to AHC. See "The
Distribution - Terms of the Indemnification Agreement;" -- Terms of the Tax
Matters Agreement"; and "--Terms of the Escrow Agreement".
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties by
Axion as to: the corporate organization, standing and power of Axion, AHC and
each subsidiary of the Retained Company and AHC; the subsidiaries of Axion, the
Retained Company and AHC; the capitalization of Axion and its subsidiaries; the
authorization of the Merger Agreement, the Distribution Agreement, the
Indemnification Agreement, the Tax Matters Agreement, the Escrow Agreement, the
Transitional Services Agreement, the AHC Supply Agreement, the OnCare Supply
Agreement, the License Agreement, the AHC Medstation Agreement, the OnCare
Medstation Agreement and each of the Non-Competition Agreements (collectively,
the "Documents"); required consents and approvals; the noncontravention of any
contract, law, or charter or by-law provision by the Documents or the
consummation of transactions contemplated thereby; the absence of the need,
except as specified in the Merger Agreement, for governmental consents to the
Merger to be obtained by Axion or any of its subsidiaries; the accuracy of the
financial statements provided by Axion and its subsidiaries, the Retained
Company and its subsidiaries and AHC and its subsidiaries; the accuracy of
information supplied by Axion for use in the Form S-4, this Proxy
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Statement/Prospectus and the Information Statement attached as Appendix G
hereto, the Application (as defined in the Merger Agreement), if required, the
Form S-1 (as defined in the Merger Agreement) (the "Form S-1"), if required, and
the other Required AHC Documents (as defined in the Merger Agreement); the
absence of certain changes or events having an Axion Material Adverse Effect (as
defined in the Merger Agreement), a Retained Company Material Adverse Effect or
an AHC Material Adverse Effect; certain employee benefit matters; absence of
changes in Benefit Plans; certain tax matters; no excess parachute payments; the
non-applicability of Section 203 of the DGCL or any state or federal
anti-takeover statute to the Merger Agreement and the other Documents and the
transactions contemplated thereby; obligations to brokers and finders; certain
matters relating to the Distribution Agreement and the assets and liabilities of
Axion and its subsidiaries; compliance by Axion and its subsidiaries with
applicable laws and environmental laws; permits held by Axion and its
subsidiaries and the Retained Company and its subsidiaries; the rights of Axion
and its subsidiaries in certain property or assets that are used in the business
of the Retained Company or any of its subsidiaries, intellectual property,
assets other than real property interests, real property, insurance, accounts
receivable and inventory; pending or threatened litigation against Axion or any
of its subsidiaries; lack of labor controversies relating to Axion or any of its
subsidiaries; absence of certain contracts; bank and savings accounts, safe
deposit boxes, powers of attorney and officers and directors of Axion and its
subsidiaries; transactions with affiliates; effect of the transactions
contemplated by the Merger Agreement and the other Documents on business
relationships of the Retained Company and its subsidiaries; the accuracy of
information furnished; the relationship of Axion and its subsidiaries with
suppliers and customers and absence of any material adverse change in such
relationships; and the accuracy of representations and warranties.
The Merger Agreement also includes representations and warranties by BMS as
to: the corporate organization, standing and corporate power of BMS and BMS Sub;
the valid issuance of BMS Common Stock; the authorization of the Merger
Agreement and the other Documents; the noncontravention of any agreement, law or
charter or by-law provision by the Documents or the consummation by BMS or BMS
Sub of any transactions contemplated thereby; the accuracy of BMS's reports and
financial statements filed with the Commission; the absence of certain changes
or events having a BMS Material Adverse Effect, except as specified in the
Merger Agreement; pending or threatened litigation against BMS; the accuracy of
representations and warranties; the accuracy of information supplied by BMS for
inclusion in this Proxy Statement/Prospectus; voting requirements; interim
operations of BMS Sub; and obligations to brokers and finders.
Covenants
Ordinary Conduct of Axion and its Subsidiaries
Pursuant to the Merger Agreement, Axion has agreed that during the period
from the date of the Merger Agreement until the Effective Time, except for the
Contributions, the Distribution, the Merger and the other transactions expressly
provided for in the Documents, as expressly contemplated or permitted by the
Merger Agreement or to the extent that BMS otherwise consents in writing (it
being understood that BMS shall be deemed to have consented to any action or
failure to act that would constitute a breach of this Section 5.01 if and to the
extent such action or failure to act was taken pursuant to the express written
direction of the Deciding Member (as defined in the First Amendment dated as of
August 2, 1996 to the Partnership Agreement) in accordance with the provisions
of Section 7.7 of the Partnership Agreement, as amended) with such consent to be
within BMS's sole discretion:
(a) Axion and its subsidiaries will each carry on their respective
businesses in the usual, regular and ordinary course in substantially the
same manner as presently conducted consistent with past practice and will
make all reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers,
licensors, licensees, distributors and others having business dealings with
the Retained Business with the
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goal that the goodwill and ongoing businesses of the Retained Business will
be unimpaired at the Effective Time, it being understood that the failure
of any employee of the Retained Company to be an employee of the Retained
Company or its subsidiaries at the Effective Time (other than James W.
Adams, Michael B. Cunningham, Warren M. Dodge, Lynn B. Hammerschmidt and
David L. Levison) will not constitute a breach of this covenant; provided,
that no employee of the Retained Company may be terminated by Axion or any
of its subsidiaries prior to the Effective Time except with cause or with
the prior written consent of BMS which consent will not be unreasonably
withheld; provided further, that the satisfaction of any Pre-JV Sales Taxes
and JV Sales Taxes (each such term as defined in the Tax Matters Agreement)
will not constitute a breach of this covenant. Axion, its subsidiaries and
their respective directors, officers or employees will each continue to use
their respective reasonable best efforts to promote the interests of Axion
and its subsidiaries, and Axion will not, nor will it permit any of its
subsidiaries or any of their respective directors, officers or employees
to, take any action that would conflict with the business of Axion or any
of its subsidiaries or that would have or could reasonably be expected to
have, a Retained Company Material Adverse Effect or an AHC Material Adverse
Effect.
(b) Axion will not, nor will it permit any of its subsidiaries to, (i)
split, combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (ii) repurchase, redeem or
otherwise acquire any shares of capital stock of Axion or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities except as disclosed
in the schedules to the Merger Agreement; (iii) transfer or sell, or
authorize or propose or agree to the issuance, transfer or sale by Axion or
any such subsidiary of any shares of its capital stock of any class or
other equity interests, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than the issuance, transfer, sale or disposition of Axion
Common Stock upon the exercise of Axion Options outstanding as of the date
of the Merger Agreement in accordance with their terms on the date of the
Merger Agreement or (iv) issue, declare, set aside, make or pay any
dividends on or other distributions with respect to its capital stock.
(c) Axion will not, nor will it permit any of its subsidiaries to,
amend or propose to amend its certificate of incorporation or by-laws or
other comparable charter or organizational documents.
(d) Axion will not, nor will it permit any of its subsidiaries to,
make any change in the lines of business engaged in by (i) the Retained
Company or any of its subsidiaries as of the date of the Merger Agreement
or (ii) AHC or any of its subsidiaries as of the date of the Merger
Agreement that would, based on the facts and circumstances and conduct of
the particular business, materially increase the potential liability of the
Retained Company or any of its subsidiaries under statutes or legal
doctrines permitting the imposition of liability on a parent corporation in
respect of the liabilities of its subsidiaries.
(e) Axion will not, nor will it permit any of its subsidiaries to, (i)
acquire (A) by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any material assets except
as provided in paragraph (b) above or purchases of inventory in the
ordinary course of business consistent with past practice or (ii) make or
agree to make any other investment in any person (whether by means of loan,
capital contribution, purchase of capital stock, obligations or other
securities, purchase of all or any integral part of the business of the
person or any commitment or option to make an investment or otherwise)
(other than loans to Axion employees to fund the purchase of Axion Common
Stock in connection with the exercise of such employee's respective Axion
Options).
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(f) Axion will not, nor will it permit any of its subsidiaries to,
sell, lease, license or otherwise dispose of any of its material assets,
except sales of inventory in the ordinary course of business consistent
with past practice.
(g) Axion will not, nor will it permit any of its subsidiaries to, (i)
incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Axion or such
subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial statement
condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice
under the Loan Agreement dated as of December 2, 1994, between Bank of
America National Trust and Savings Association and the Partnership, as
amended (the "Loan Agreement"), (ii) permit, allow or suffer to exist any
mortgage, lien, encumbrance, easement, covenant, right-of-way or other
similar restriction of any nature whatsoever which would have been required
to be set forth in schedules to the Merger Agreement if existing on the
date of the Merger Agreement or (iii) cancel any material indebtedness
(individually or in the aggregate) or waive any claims or rights of
substantial value.
(h) Axion will not, nor will it permit any of its subsidiaries to,
make or agree to make any capital expenditure or expenditures which, in the
aggregate, are in excess of $3,000,000 other than capital expenditures that
will constitute part of the Acquired Assets.
(i) Axion will not, nor will it permit any of its subsidiaries to, (i)
adopt or amend any Benefit Plan or collective bargaining agreement, (ii)
grant to any executive officer or employee any increase in compensation or
benefits or (iii) amend the Oncology Therapeutics Network Corporation
Officers Severance Plan to add any additional participants to such Plan;
provided, however, that Axion may, and may permit its subsidiaries to,
grant an executive officer or employee of AHC an increase in compensation
(but not including benefits) so long as immediately following the Effective
Time neither the Retained Company nor any of its subsidiaries has any
direct or indirect liability whatsoever resulting from such change or
increase.
(j) Axion will not, nor will it permit any of its subsidiaries to,
change any of its accounting principles, practices, policies or procedures,
except such changes as may be required by GAAP.
(k) Except as scheduled in the Merger Agreement and except for (i) the
Preference Amount distributed pursuant to the Distribution Agreement and
(ii) the intercompany transactions between Axion and its current
subsidiaries in the ordinary course of business consistent with past
practice of the types identified as such in a schedule to the Merger
Agreement, Axion will not, nor will it permit any of its subsidiaries to,
pay, loan or advance any amount to, or sell, transfer or lease any of its
assets or enter into any agreement with Axion or any of its subsidiaries or
affiliates (including OnCare and its subsidiaries).
(l) Axion will, and will cause the Retained Company and its
subsidiaries to, maintain and preserve, consistent with past practice, in
good repair, working order and condition all property material to the
Retained Business and will timely make or cause to be timely made all
appropriate repairs, renewals and replacements thereof, consistent with
past practice.
(m) Axion will not, nor will it permit any of its subsidiaries to, (i)
enter into any lease of real property, except any renewals of existing
leases in the ordinary course of business with respect to which BMS will
have the right to participate and the terms and conditions of which will be
approved by BMS (which approval will not be unreasonably withheld) or (ii)
modify, amend, terminate or permit the lapse of any lease of, or reciprocal
easement agreement, operating agreement or other material agreement
relating to, real
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property (except modifications or amendments associated with renewals of
existing leases in the ordinary course of business with respect to which
BMS will have the right to participate).
(n) Axion will not, nor will it permit any of its subsidiaries to, (i)
enter into any contract that is required to be assigned to one of the
Retained Companies or to AHC or OPUS Sub in connection with the
transactions contemplated in the Distribution Agreement unless such
contract may be so assigned without any liability to the Retained Company
or any of its subsidiaries or the consent of any third party or (ii) enter
into, terminate or modify in any material respect any material contract
other than in the ordinary course of business consistent with past
practice.
(o) Axion will not, nor will it permit any of its subsidiaries to,
agree, whether in writing or otherwise, to take any of the actions
prohibited by the above.
Additional Covenants of Axion
Pursuant to the Merger Agreement, Axion has agreed as to itself and its
subsidiaries that, except as expressly provided for in the Documents, during the
period from the date of the Merger Agreement and continuing to the Effective
Time:
(a) Notwithstanding the fact that such action might otherwise be
permitted pursuant to the Merger Agreement, Axion will not, nor will it
permit any of its subsidiaries to, take any action that would or is
reasonably likely to result in (i) any of the conditions to the Merger set
forth in the Merger Agreement not being satisfied, (ii) any of the
representations and warranties of Axion set forth in the Merger Agreement
that are qualified as to materiality becoming untrue or (iii) any of such
representations and warranties that are not so qualified becoming untrue in
any material respect, or that would materially impair the ability of Axion
to consummate the Contributions or the Distribution in accordance with the
terms of the Distribution Agreement or the Merger in accordance with the
terms of the Merger Agreement or would materially delay such consummation
or that would, to the knowledge of Axion, disqualify the Distribution as a
tax-free spinoff within the meaning of Section 355 of the Code or
disqualify the Merger as a tax-free reorganization under Section 368(1)(B)
of the Code.
(b) Axion will (i) not engage in or allow transfers of assets or
liabilities or engage or enter into other transactions between (A) the
Retained Company and its subsidiaries, on the one hand, and (B)(I) AHC and
its subsidiaries, (II) OnCare and its subsidiaries or (III) any affiliate
of AHC or OnCare, on the other hand, except as expressly contemplated by
the Merger Agreement and by the other Documents, (ii) abide and cause AHC
and its subsidiaries to abide by their respective obligations under the
Documents and (iii) not terminate or amend, or waive compliance with any
obligations under, the Documents (other than the waiver by Axion of the
conditions to its obligations to close under the Merger Agreement and other
than by termination of the Merger Agreement by Axion in accordance with
certain provisions of the Merger Agreement) without the consent of BMS
which consent can be withheld in its sole discretion.
(c) Axion will promptly advise BMS orally and in writing of any change
or development or combination of changes or developments that would cause
the representation set forth under "--Representations and Warranties", with
respect to the absence of certain changes or events, to be untrue. Axion
will promptly provide BMS (or its counsel) copies of all filings made by
Axion with any Federal, state or foreign Governmental Entity in connection
with the Documents and the transactions contemplated hereby and thereby.
(d) Axion will keep, or cause to be kept, all insurance policies set
forth in the schedules to the Merger Agreement, or suitable replacements
therefor, in full force and effect through the close of business on the
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Closing Date. Axion will, and will cause its subsidiaries to, use its
reasonable best efforts to renew the insurance policies set forth in the
schedules to the Merger Agreement, or suitable replacements therefor,
maintained with respect to Axion and its subsidiaries and their respective
assets and properties upon expiration or termination of such policies on a
month-to-month basis.
(e) On the Closing Date, Axion will cause to be delivered to BMS duly
signed resignations (from the applicable board of directors), effective
immediately after the Closing, of all directors of the Retained Company and
each of its subsidiaries and will take such other action as is necessary to
accomplish the foregoing.
(f) (i) From the date of the Merger Agreement through the Closing,
Axion will give prompt notice to BMS of (A) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause
any representation or warranty contained in the Merger Agreement or any
other Document to be untrue or inaccurate in any material respect and (B)
any material failure of Axion or any of its subsidiaries or affiliates, or
of any of its stockholders or holders of Axion Options, to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it under the Merger Agreement or any other Document; provided,
however, that such disclosure will not be deemed to cure any breach of a
representation, warranty, covenant or agreement or to satisfy any
condition. Axion will promptly notify BMS of any default, the threat or
commencement of any action, or any development that occurs before the
Closing that could in any way materially affect the Retained Business, the
Retained Company and its subsidiaries or AHC and its subsidiaries. Axion
will have the continuing obligation until the Closing to supplement or
amend the schedules to the Merger Agreement on a monthly basis with the
final supplement or amendment to such schedules to occur not later than two
business days prior to the Closing.
(ii) Axion will promptly notify BMS of and furnish BMS any information
it may reasonably request with respect to, the occurrence to Axion's actual
knowledge of any event or condition or the existence to Axion's actual
knowledge of any fact that would cause any of the conditions to BMS's
obligation to consummate the Merger and the other transactions contemplated
by the Merger Agreement not to be fulfilled.
(g) (i) Axion will, and will direct and use its best efforts to cause
its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may
be ongoing with respect to an Acquisition Proposal (as defined below).
Axion will not, nor will it permit any of its subsidiaries to, nor will it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, directly or
indirectly, (A) solicit, initiate or knowingly encourage (including by way
of furnishing information), or take any other action designed or reasonably
likely to facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Acquisition
Proposal or (B) participate in any discussions or negotiations regarding
any Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in the preceding sentence
by any director or executive officer of Axion or any of its subsidiaries,
whether or not such person is purporting to act on behalf of Axion or any
of its subsidiaries or otherwise, will be deemed to be a breach of this
covenant by Axion. For purposes of the Merger Agreement, "Acquisition
Proposal" means any inquiry, proposal or offer from any person with respect
to a merger, acquisition, consolidation or similar transaction involving,
or any purchase of all or any significant portion of the assets or any
equity securities of, the Retained Business, other than the transactions
contemplated by the Merger Agreement, or any other transaction the
consummation of which could reasonably be expected to impede, interfere
with, prevent or materially delay the Merger or which would reasonably be
expected to dilute materially the benefits to BMS of the transactions
contemplated by the Merger Agreement and the other Documents.
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(ii) Neither the Axion Board nor any committee thereof will (A)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to BMS, the approval or recommendation by such Board or such
committee of the Merger or the Merger Agreement, (B) approve or recommend,
or propose publicly to approve or recommend, any Acquisition Proposal or
(C) cause Axion to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Acquisition
Proposal.
(iii) In addition to the obligations of Axion set forth in paragraphs
(i) and (ii) above, Axion will immediately advise BMS orally and in writing
of any request for information or of any Acquisition Proposal, the material
terms and conditions of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal. Axion
will keep BMS fully informed of the status and details (including
amendments or proposed amendments) of any such request or Acquisition
Proposal.
Covenants of BMS
During the period from the date of the Merger Agreement and continuing to
the Effective Time, BMS agrees as to itself and its subsidiaries, except to the
extent that Axion otherwise consents in writing with such consent to be within
Axion's sole discretion, that: notwithstanding the fact that such action might
otherwise be permitted pursuant to the Merger Agreement, BMS will not, nor will
it permit any of its subsidiaries to, take any action that would or could
reasonably be likely to result in (i) any of the conditions to the Merger set
forth in the Merger Agreement not being satisfied, (ii) any of the
representations and warranties of BMS set forth in the Merger Agreement that are
qualified as to materiality becoming untrue or (iii) any of such representations
and warranties that are not so qualified becoming untrue in any material respect
or materially impairing the ability of BMS to consummate the Merger in
accordance with the terms of the Merger Agreement.
Certain Regulatory Approvals
The Merger is subject to review under the HSR Act by the FTC and the
Antitrust Division. The Merger is subject to the expiration or earlier
termination of the waiting period under the HSR Act. Axion and BMS each filed
notification and report forms under the HSR Act with the FTC and DOJ on July 10,
1996.
Stock Exchange Listing
BMS has agreed in the Merger Agreement to use its reasonable best efforts
to cause the shares of BMS Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date. Such approval for listing on the NYSE is a condition to
each party's obligation to consummate the Merger. See "-- Conditions--Conditions
to Each Party's Obligation To Effect the Merger".
Conditions
Conditions to Each Party's Obligation To Effect the Merger
The Merger Agreement provides that the respective obligation of each party
to effect the Merger is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) The holders of not less than 66-2/3% of the outstanding shares of
Axion Preferred Stock voting together as a class will have elected to
convert all outstanding Axion Preferred Stock into Axion Common Stock in
accordance with the Axion Certificate of Incorporation, and at least a
majority of the total number of votes entitled to be cast by holders of
Axion Common Stock voting together as a single class will have approved and
adopted the Merger Agreement and at least a majority of the total number of
votes entitled to
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be cast by holders of Axion Preferred Stock voting together as a single
class will have approved and adopted the Merger Agreement in accordance
with the DGCL, other applicable law, the Axion Certificate of Incorporation
and the Axion By-laws.
(b) The shares of BMS Common Stock issuable to Axion's stockholders
pursuant to the Merger Agreement will have been approved for listing on the
NYSE, subject to official notice of issuance.
(c) The waiting period (and any extension thereof) applicable to the
Merger under the HSR Act will have been terminated or will have expired.
(d) All filings required to be made prior to the Closing Date with,
and all consents, approvals and authorizations required to be obtained
prior to the Closing Date from, any governmental entity in connection with
the execution, delivery and performance of the Documents or the
consummation of the Contributions, the Distribution, the Merger and the
other transactions contemplated by the Documents will have been made or
obtained.
(e) (i) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or
other legal restraint or prohibition preventing the consummation of the
Merger will be in effect; provided, however, that each of the parties will
have used its reasonable best efforts to prevent the entry of any such
injunction or other order and to appeal as promptly as possible any such
injunction or other order that may be entered and (ii) no action, suit or
other proceeding will be pending or, to the knowledge of Axion and BMS,
threatened by any governmental entity that, if successful, would restrict
or prohibit the consummation of the transactions contemplated in the Merger
Agreement or other Documents.
(f) The Form S-4 will have become effective under the Securities Act
and will not be the subject of any stop order or proceedings seeking a stop
order.
(g) Axion's No-Action Request will have been granted by the
Commission, or in the event such no- action relief is not obtained either
(i) the Form S-1 will have become effective under the Securities Act and
will not be the subject of any stop order or proceedings seeking a stop
order or (ii) the Application will have been made to the California
Commissioner of Corporations (the "Commissioner"), the hearing upon the
fairness of the terms and conditions of the issuance and exchange of the
securities will have been held by the Commissioner, the Commissioner will
have approved the terms and conditions of the issuance and exchange and the
fairness of such terms and conditions and a permit for the issuance and
exchange of the securities will have been issued by the Commissioner.
(h) The pre-merger transactions contemplated by the Merger Agreement,
including the Contributions and the Distribution, will have become
effective in accordance with the terms of the Distribution Agreement and
each of the agreements contemplated thereby.
Conditions to Obligations of BMS and BMS Sub
The obligations of BMS and BMS Sub to effect the Merger are further subject
to each of the following conditions prior to the Closing Date, unless waived by
BMS:
(a) The representations and warranties of Axion set forth in the
Merger Agreement and the other Documents that are qualified as to
materiality will be true and correct, and the representations and
warranties of Axion set forth in the Merger Agreement that are not so
qualified will be true and correct in all material respects, in each case
as of the date of the Merger Agreement and as of the Closing Date as though
made on
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and as of the Closing Date, except that the accuracy of representations and
warranties that by their terms speak as of the date of the Merger Agreement
or some other date will be determined as of such date and BMS will have
received a certificate signed on behalf of Axion by the chief executive
officer and the chief financial officer of Axion to such effect.
(b) Each of Axion and its subsidiaries will have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement and the other Documents at or prior to the Closing Date
and BMS will have received a certificate signed on behalf of Axion by the
chief executive officer and the chief financial officer of Axion to such
effect.
(c) Since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to
have, a Retained Company Material Adverse Effect or an AHC Material Adverse
Effect. As used in the Merger Agreement, any reference to any event,
change, circumstance or development having a material adverse effect on or
with respect to the Retained Company and its subsidiaries taken as a whole
(a "Retained Company Material Adverse Effect") means such event, change,
circumstance or development is materially adverse to the business,
operation, assets, liabilities (including contingent liabilities), results
of operations, financial condition or prospects of such group of entities
taken as a whole, or on the ability of such group of entities taken as a
whole to consummate the transactions contemplated by the Merger Agreement
or by any other Document, including the Contributions, the Distribution and
the Merger, or to perform its obligations under the Merger Agreement or any
other Document to which it is or will be a party; provided that a Retained
Company Material Adverse Effect will not include any changes to the
Retained Business occurring directly as a result of the pendency,
announcement or consummation of the Merger. As used in the Merger
Agreement, any reference to any event, change, circumstance or development
having a material adverse effect on or with respect to AHC and its
subsidiaries taken as a whole (an "AHC Material Adverse Effect") means such
event, change, circumstance or development is materially adverse to the
business, operations, assets, liabilities (including contingent
liabilities), results of operations, financial condition or prospects of
such group of entities taken as a whole, or on the ability of such group of
entities taken as a whole to consummate the transactions contemplated by
the Merger Agreement or by any other Document, including the Contributions,
the Distribution and the Merger, or to perform its obligations under the
Merger Agreement or any other Document to which it is or will be a party;
provided that the fact that the business of AHC and its subsidiaries as
currently conducted and as proposed to be conducted immediately following
the Effective Time is operating and is projected to operate on a loss basis
to the extent previously disclosed to BMS in writing will not be deemed to
constitute an AHC Material Adverse Effect.
(d) Each of the Documents will have been executed substantially in the
forms attached as exhibits to the Merger Agreement or, if not included as
exhibits, in the form mutually agreed to by the parties thereto and BMS, as
the case may be, by the applicable parties thereto (other than BMS and its
affiliates) and will have become effective in accordance with its terms and
be in full force and effect. Axion will have delivered to BMS true, correct
and complete copies of each Document to which BMS is not a party.
(e) BMS will have received (i) a letter of its counsel, Cravath,
Swaine & Moore, to the effect that they reaffirm the opinion they furnished
pursuant to the Merger Agreement to the effect that the Merger will be
treated for Federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Code and (ii) a letter of Axion's
advisors, Ernst & Young, to the effect that they reaffirm the opinion
furnished pursuant to the Merger Agreement concerning the qualification of
the Distribution as a tax-free spinoff under Section 355 of the Code,
except in the case of each of the letters referred to in clauses (i) and
(ii) of this paragraph (e), the specified date referred to will be a date
not more than five days prior to Closing.
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(f) There will not be pending or threatened any suit, action or
proceeding by any governmental entity or any other person, or before any
court or governmental authority, agency or tribunal, domestic or foreign,
in each case that has a reasonable likelihood of success, (i) challenging
the acquisition by BMS or BMS Sub of any shares of Axion Common Stock,
seeking to restrain or prohibit the consummation of the Merger, the
Contributions and the Distribution or any of the other transactions
contemplated by the Merger Agreement or seeking to obtain from Axion, BMS
or BMS Sub any damages that are material in relation to the Retained
Company and its subsidiaries taken as a whole or AHC and its subsidiaries
taken as a whole, (ii) seeking to prohibit or limit the ownership or
operation by BMS or BMS Sub, or to compel BMS or BMS Sub to dispose of or
hold separate any material portion, of the Retained Business, (iii) seeking
to impose limitations on the ability of BMS or BMS Sub to acquire or hold,
or exercise full rights of ownership of, any shares of Axion Common Stock,
including the right to vote the Axion Common Stock purchased by it on all
matters properly presented to the stockholders of Axion, (iv) seeking to
prohibit BMS or any of its subsidiaries from effectively controlling in any
material respect the Retained Business or (v) which otherwise would have,
or could reasonably be expected to have a Retained Company Material Adverse
Effect or an AHC Material Adverse Effect.
(g) Since the effective date of the Form S-4 or the date of this Proxy
Statement/Prospectus or the date of the Information Statement, as
applicable, or in the event the No-Action Request is not granted by the
Commission, since the effective date of the Form S-1 or at the time the
Application is filed with the Commission, as applicable, no event with
respect to Axion, any subsidiary of Axion or any security holder of Axion
has occurred which should have been set forth in an amendment to the Form
S-4 or the Form S-1 or a supplement to this Proxy Statement/Prospectus or
the Information Statement or the Application or an amendment or supplement
to any Required AHC Document which has not been set forth in such an
amendment or supplement.
(h) All consents and approvals of all persons (other than governmental
entities) required to be obtained prior to the Closing Date in connection
with the execution, delivery and performance of the Documents and the
consummation of the Contributions, the Distribution, the Merger and the
other transactions contemplated by the Documents and all releases referred
to in the Merger Agreement will have been obtained and will be in full
force and effect.
(i) No involuntary proceeding will be commenced or an involuntary
petition will be filed in a court of competent jurisdiction seeking (i)
relief in respect of Axion or any of its subsidiaries, or of a substantial
part of the property or assets of Axion or any of its subsidiaries, under
Title 11 of the United States Code (the "U.S.C."), as now constituted or
hereafter amended, or any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for Axion or any
of its subsidiaries or for a substantial part of their respective property
or assets or (iii) the winding up or liquidation of Axion or any of its
subsidiaries; and such proceeding or petition will continue undismissed for
30 days or an order or decree approving or ordering any of the foregoing
will be entered. None of Axion or any of its subsidiaries will have (i)
voluntarily commenced any proceeding or file any petition seeking relief
under Title 11 of the U.S.C., as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or similar
law, (ii) consented to the institution of, or failed to contest in a timely
and appropriate manner, any proceeding or the filing of any petition
described above, (iii) applied for or consented to the appointment of a
receiver, trustee, custodian, sequestrator, conservator or similar official
for Axion or any of its subsidiaries or for a substantial part of the
property or assets of Axion or any of its subsidiaries, (iv) filed an
answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) made a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or failed
generally to pay its debts as they become due or (vii) taken any action for
the purpose of effecting any of the foregoing.
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(j) All existing arrangements between the Surviving Corporation and
its subsidiaries on the one hand and OnCare and AHC and their respective
subsidiaries and affiliates on the other hand will be terminated,
including, but not limited to, termination of the Supply Agreement dated
January 1, 1996, between the Partnership and OnCare and the Axion guarantee
of Bank of America National Trust and Saving Association debt of OnCare but
excluding the AHC Supply Agreement and OnCare Supply Agreement and the AHC
Medstation Agreement and OnCare Medstation Agreement.
(k) Each issued and outstanding share of Axion Preferred Stock will
have been converted into fully paid and nonassessable shares of Axion
Common Stock pursuant to and in accordance with the terms of such Axion
Preferred Stock.
(l) No Dissenting Shares will be outstanding.
(m) All Axion Options will have been exercised or canceled, and no
Axion Options will be assumed by the Surviving Corporation.
(n) Immediately prior to the Effective Time, there will not be
outstanding any indebtedness for borrowed money, or any guarantees in
respect of any indebtedness for borrowed money of any third party, in
respect of which the Retained Company or any of its subsidiaries is
obligated, other than indebtedness in an aggregate principal amount of
$35,617,000, consisting only of outstandings under the Loan Agreement and
BMS will have received a certificate signed on behalf of Axion by the chief
executive officer and chief financial officer of Axion to such effect.
Immediately prior to the Effective Time, (i) a certificate of a vice
president of Bank of America National Trust and Savings Association will be
executed and delivered to BMS certifying that the aggregate principal
amount outstanding under the Loan Agreement as of such date does not exceed
$35,617,000 and (ii) an amendment or waiver of the Loan Agreement will be
executed and delivered permitting the Merger and the other transactions
contemplated by the Documents.
(o) BMS and BMS Sub will have received an opinion dated the Closing
Date of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel to Axion, with respect to such matters as BMS and its counsel shall
reasonably request in form and substance reasonably satisfactory to BMS and
its counsel.
Conditions to Obligation of Axion
The obligations of Axion to effect the Merger are further subject to each
of the following conditions prior to the Closing Date, unless waived by Axion:
(a) The representations and warranties of BMS set forth in the Merger
Agreement and the other Documents that are qualified as to materiality will
be true and correct, and the representations and warranties of BMS set
forth in the Merger Agreement that are not so qualified will be true and
correct, in all material respects, in each case as of the date of the
Merger Agreement and as of the Closing Date as though made on and as of the
Closing Date, except that the accuracy of representations and warranties
that by their terms speak as of the date of the Merger Agreement or some
other date will be determined as of such date and Axion will have received
a certificate signed on behalf of BMS by an authorized officer of BMS to
such effect.
(b) Each of BMS and BMS Sub will have performed in all material
respects all obligations required to be performed by it under the Merger
Agreement and the other Documents at or prior to the Closing Date and Axion
will have received a certificate signed on behalf of BMS by an authorized
officer of BMS to such effect.
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(c) Except as disclosed in any documents filed by BMS with the
Commission and publicly available on or prior to the date of the Merger
Agreement, since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to
have, a BMS Material Adverse Effect. "BMS Material Adverse Effect" means a
material adverse effect on the business, operations, assets, liabilities
(including contingent liabilities), results of operations, financial
condition or prospects of BMS and its subsidiaries taken as a whole.
(d) Each of the Documents to which BMS or BMS Sub is a party will have
been executed substantially in the forms attached as exhibits to the Merger
Agreement or, if not included as exhibits, in the form mutually agreed to
by the parties thereto and Axion, as the case may be, by the applicable
parties thereto (other than Axion and its affiliates) and will have become
effective in accordance with its terms and be in full force and effect. BMS
will have delivered to Axion, true, correct and complete copies of each
Document to which Axion is not a party.
(e) Axion and AHC will have received (i) a letter of its counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the
effect that they reaffirm the opinion furnished pursuant to the Merger
Agreement to the effect that the Merger will be treated for Federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a) of the Code and (ii) Axion and AHC will have received a letter of
Axion's advisors, Ernst & Young, to the effect that they reaffirm the
opinion furnished pursuant to the Merger Agreement concerning the
qualification of the Distribution as a tax-free spinoff under Section 355
of the Code, except in the case of each of the letters referred to in
clauses (i) and (ii) of this paragraph (e), the specified date not more
than five days prior to Closing.
(f) Since the effective date of the Form S-4 or this Proxy
Statement/Prospectus, as applicable, no event with respect to BMS, any
subsidiary of BMS or any security holder of BMS has occurred which should
have been set forth in an amendment to the Form S-4 or a supplement to this
Proxy Statement/Prospectus which has not been set forth in such an
amendment or supplement.
(g) Axion and AHC will have received an opinion dated the Closing Date
of Cravath, Swaine & Moore, counsel to BMS, with respect to such matters as
Axion and its counsel shall reasonably request in form and substance
reasonably satisfactory to Axion and its counsel.
Termination, Amendment and Waiver
Termination
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the Axion stockholders: (a) by mutual written consent of BMS, BMS
Sub and Axion; (b) by either BMS or Axion: (i) if, upon a vote at the Special
Meeting or any adjournment thereof, any required approval of the Axion
stockholders will not have been obtained; (ii) if the Merger will not have been
consummated on or before November 30, 1996, unless the failure to consummate the
Merger is the result of a wilful and material breach of the Merger Agreement by
the party seeking to terminate the Merger Agreement; provided, however, that the
passage of such period will be tolled for any part thereof (but in no event
beyond December 31, 1996) during which any party will be subject to a nonfinal
order, decree, ruling or action restraining, enjoining or otherwise prohibiting
the consummation of the Merger or the calling or holding of the Special Meeting;
or (iii) if any governmental entity will have issued an order, decree or ruling
or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action will have
become final and nonappealable; (c) by Axion if BMS or BMS Sub will have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement or any other Document to be performed by BMS
or BMS Sub at or prior to the time of termination,
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which breach will not have been cured within 30 days following written notice of
such breach; or (d) by BMS if Axion or any of its subsidiaries will have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement or any other Document to be performed by Axion
or any of its subsidiaries at or prior to the time of termination, which breach
will not have been cured within 30 days following written notice of such breach.
Effect of Termination
In the event of termination of the Merger Agreement by either Axion or BMS
as described in "--Termination", the Merger Agreement will forthwith become void
and have no effect, and, except for certain obligations provided for in the
Merger Agreement which will survive termination, there will be no liability or
obligation on the part of BMS, BMS Sub or Axion, except to the extent that such
termination results from the wilful and material breach by a party of any of its
representations, warranties, covenants or agreements set forth in the Merger
Agreement, the Distribution Agreement or any agreement contemplated thereby.
Amendment
The Merger Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the stockholders of Axion; provided, however, that after any such approval,
there will be made no amendment that by law requires further approval by such
stockholders without the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties.
Expenses
The Merger Agreement provides that (except as provided below) whether or
not the Merger is consummated, all out-of-pocket fees and expenses incurred in
connection with the Merger, the Distribution or the consummation of any of the
transactions contemplated by the Merger Agreement and the Documents and the
negotiation, preparation, review and delivery of the agreements contemplated
thereby, including all fees and expenses of accountants, legal counsel,
investment bankers and other advisors will be paid by the party incurring such
fees or expenses, except that expenses incurred in connection with printing and
mailing this Proxy Statement/Prospectus and the Form S-4 will be shared equally
by BMS and Axion. Expenses incurred in connection with the Required AHC
Documents will be paid by Axion. At the Closing, BMS will provide, or cause to
be provided, to Axion funds in an amount equal to the lesser of $2,000,000 and
the aggregate amount of Axion Expenses set forth in a schedule to the Merger
Agreement, and Axion will pay the Axion Expenses listed in such schedule.
Accounting Treatment
The Merger will be accounted for by BMS as a "purchase" for financial
accounting purposes in accordance with GAAP. The purchase price (i.e., the
Merger Consideration) will be allocated based on the fair values of assets
acquired and liabilities assumed.
Interests of Certain Persons in the Transactions
In considering the recommendations of the Axion Board, Axion stockholders
should be aware that Axion's officers and members of the Axion Board will have
certain interests in the Distribution and the Merger as a result of their status
as stockholders plus certain interests in addition to the interests of
stockholders generally.
The Merger will constitute a "corporate transaction" of Axion with respect
to all options outstanding under the Axion 1989 Stock Option and Restricted
Stock Plan (the "Axion 1989 Plan") and 1995 Executive Stock
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Option Plan (the "Axion 1995 Plan"). See "Effect of Transactions on Axion
Employees and Axion Benefit Plans". Accordingly, the authorization and adoption
of the Merger Agreement by Axion stockholders will, if the Merger is
consummated, have the following consequences with respect to such options:
(a) all such options that had not previously become exercisable and vested
will become fully exercisable and vested upon the consummation of the
Merger;
(b) Axion will extend loans to each executive officer, in addition to each
current employee or consultant, holding an outstanding option to
enable such individual to exercise in full his or her options; and
(c) each officer who exercises his or her Axion options will receive in
exchange in the Merger shares of BMS Common Stock, which stock will be
freely tradable immediately following the consummation of the Merger,
subject only to contractual restrictions on the officer's ability to
resell the BMS Common Stock and the limitations set forth under Rule
145 under the Securities Act.
As of June 30, 1996, options to purchase a total of 1,722,433 shares of
Axion Common Stock, at exercise prices ranging from $0.075 to $10.00 per share
were held by 97 Axion employees, directors and consultants. Of the options so
held, options to purchase a total of 778,635 shares at prices ranging from
$0.075 to $10.00 per share were unvested at June 30, 1996 and will become vested
as a result of the Merger. Michael D. Goldberg, the President and Chief
Executive Officer of Axion, has advised Axion that he does not intend to
exercise the Goldberg $10.00 Options, which, accordingly, will be cancelled
prior to the Effective Time. Set forth below is a table showing, for certain of
Axion's officers, the total number of shares subject to options (vested and
unvested) held by the officer as of June 30, 1996, the range of exercise prices
under such options and the number of option shares that will become vested as a
result of the Merger.
Total Number No. of Option Shares
Name of Option Shares Exercise Prices to Vest on Merger
---- ---------------- --------------- -----------------
Michael D. Goldberg 360,000 $ 1.00-$10.00 149,392
David L. Levison 205,000 $ 0.42-$ 6.00 105,316
Eric T. Herfindal 200,000 $0.075-$ 6.00 91,574
Garrett J. Roper 180,000 $ 1.00-$ 6.00 93,231
Donna M. Williams 50,000 $ 6.00 14,549
George Borkow 20,000 $ 6.00 4,986
Stephen Dow 20,000 $ 1.00 6,875
Steven Gluckstern 30,000 $ 6.00 10,187
Joseph S. Lacob 30,000 $ 1.00-$ 6.00 23,104
William Miller 10,000 $ 6.00 3,118
L. John Wilkerson(1) 32,500 $ 6.00 12,187
(1) Options exercisable into 30,000 shares held by Galen Associates, a Delaware
limited partnership, and options exercisable into 2,500 shares held by Longbow
Partners, a New York general partnership. Dr. Wilkerson, a director of Axion, is
also a controlling stockholder of two corporations that are general partners of
Galen Associates. Dr. Wilkerson disclaims beneficial ownership of the options
held by Galen Associates except to the extent of his pecuniary interest therein
arising from his interests as a stockholder in the corporations that are general
partners of Galen Associates. Dr. Wilkerson is a general partner of Longbow
Partners and disclaims beneficial ownership of the options held by Longbow
Partners except to the extent of his pecuniary interest therein.
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Axion will make loans totaling approximately $6,500,000 to 97 holders of
Axion Options, who will use the proceeds to exercise such Axion Options. In
addition, OTNC has entered into employment agreements with certain employees,
which agreements will become effective at the Effective Time. Axion has also
adopted a severance plan applicable to certain employees of OTNC. See "Effect of
Transactions on Axion Employees and Axion Benefit Plans".
Axion has entered into separate indemnification agreements with its
directors and officers. These agreements require Axion, among other things, to
indemnify its directors and officers against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from actions not taken in good faith or in a manner the
indemnitee believed to be in the best interests of Axion) and to advance their
expenses incurred as a result of any proceeding against them as to which they
could be indemnified.
Resales of BMS Common Stock Issued in the Merger; Affiliates
The BMS Common Stock to be issued to Axion stockholders in connection with
the Merger will be freely transferable under the Securities Act, except for
shares issued to any person who may be deemed an "affiliate" of Axion or BMS
within the meaning of Rule 145 under the Securities Act. In the Merger
Agreement, Axion has agreed to use its reasonable best efforts to cause each of
those persons who may be deemed affiliates of Axion to deliver to BMS on or
prior to the Closing Date a written agreement providing that such persons will
not make any sale, transfer or other disposition of the BMS Common Stock
received in connection with the Merger in violation of the Securities Act or the
rules and regulations promulgated thereunder. If any affiliate refuses to
provide such an agreement, BMS will be entitled to place appropriate legends on
the BMS shares to be received by such affiliates, and to issue stop transfer
instructions to BMS's transfer agent in regard to such shares. This Proxy
Statement/Prospectus does not cover any resales of BMS Common Stock received by
affiliates of BMS, including certain family members and related interests.
Dissenters' Rights
Holders of shares of Axion Common Stock are entitled to appraisal rights
under Section 262, provided that they comply with the conditions established by
Section 262. Section 262 is reprinted in its entirety as Appendix F to this
Proxy Statement/Prospectus. The following discussion is not a complete statement
of the law relating to appraisal rights and is qualified in its entirety by
reference to Appendix F. This discussion and Appendix F should be reviewed
carefully by any Axion stockholder who wishes to exercise statutory appraisal
rights or who wishes to preserve the right to do so, since failure to comply
with the procedures set forth herein or therein will result in the loss of
appraisal rights.
Axion stockholders of record who desire to exercise their appraisal rights
must:
- hold shares of Axion Common Stock on the date of making a demand for
appraisal;
- make a written demand for appraisal prior to the vote on the Merger by
Axion stockholders;
- continuously hold such shares through the Effective Time;
- not vote in favor of the Merger nor consent thereto in writing;
- file any necessary petition in the Delaware Court of Chancery (the
"Delaware Court"), as more fully described below, within 120 days
after the Effective Time; and
- otherwise satisfy all of the conditions described more fully below.
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A record holder of shares of Axion Common Stock who makes the demand
described below with respect to such shares (the "Dissenting Shares"), who
continuously is the record holder of such shares through the Effective Time, who
otherwise complies with the statutory requirements of Section 262 and who
neither votes in favor of the Merger nor consents thereto in writing will be
entitled to an appraisal by the Delaware Court of the fair value of his shares
of Axion Common Stock. All references in Section 262 and in this summary of
appraisal rights to an "Axion stockholder" or "holders" of shares are to the
record holder or holders of shares of Axion Common Stock.
Holders of shares of Axion Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger and must deliver a
separate written demand for appraisal to Axion prior to the vote by the Axion
stockholders on the Merger. A demand for appraisal must be executed by or on
behalf of the holder of record, fully and correctly, as such holder's name
appears on the certificate or certificates representing shares of Axion Common
Stock. A person having a beneficial interest in shares of Axion Common Stock
that are held of record in the name of another person, such as a broker,
fiduciary or other nominee, must act promptly, to cause the record holder to
follow the steps summarized herein properly and in a timely manner to perfect
whatever appraisal rights are available. If shares of Axion Common Stock are
owned of record by a person other than the beneficial owner, including a broker,
fiduciary (such as a trustee, guardian or custodian) or other nominee, such
demand must be executed by or for the record owner. If shares of Axion Common
Stock are owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Axion Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case, the
written demand must set forth the number of shares covered by such demand. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Axion Common Stock outstanding in the name of such record
owner.
An Axion stockholder who elects to exercise appraisal rights should mail or
deliver his or her written demand to: Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, 600 Hansen Way, Second Floor, Palo Alto, CA 94304,
Attention: Steven M. Spurlock, Esq. The written demand for appraisal should
specify the Axion stockholder's name and mailing address, the number of shares
of Axion Common Stock owned, and that the holder is thereby demanding appraisal
of his or her shares. A proxy or vote against the Merger will not constitute
such a demand. Within ten days after the Effective Time, the Surviving
Corporation must provide notice of the Effective Time to all holders who have
complied with Section 262.
Within 120 days after the Effective Time, either Axion, as the Surviving
Corporation, or any holder who has complied with the required conditions of
Section 262, may file a petition in the Delaware Court, with a copy served on
the Surviving Corporation in the case of a petition filed by a holder, demanding
a determination of the fair value of the shares of all dissenting holders. The
Surviving Corporation does not presently intend to file an appraisal petition
and holders seeking to exercise appraisal rights should not assume that the
Surviving Corporation will file such a petition or that the Surviving
Corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, Axion stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any Axion stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation, a
statement setting forth the aggregate number of shares of Axion Common Stock
with respect to which demands for appraisal were received by Axion and the
number of holders
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of such shares. Such statement must be mailed within 10 days after the written
request therefor has been received by the Surviving Corporation or within 10
days after expiration of the time for delivery of demands for appraisal under
Section 262, whichever is later.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which holders are entitled to
appraisal rights and will appraise shares of Axion Common Stock owned by such
holders, determining the fair value of such shares exclusive of any element of
value arising from the accomplishment or expectations of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community,
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings, prospects, the nature of the enterprise and any other facts which
could be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Axion stockholders considering seeking appraisal should recognize that the
fair value of their shares determined under Section 262 could be more than, the
same as or less than the consideration they are to receive pursuant to the
Merger Agreement if they do not seek appraisal of their shares. The cost of the
appraisal proceeding may be determined by the Delaware Court and taxed against
the parties as the Delaware Court deems equitable in the circumstances. Upon
application of a dissenting Axion stockholder, the Delaware Court may order that
all or a portion of the expenses incurred by any dissenting holder in connection
with the appraisal proceeding, including without limitation, reasonable
attorney's fees and the fees and expenses of experts, be charged pro rata
against the value of all shares entitled to appraisal.
Any holder of shares of Axion Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive payment
of dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any Axion stockholder
will have the right to withdraw such demand for appraisal and to accept the
terms offered in the Merger. After this period, such stockholder may withdraw
such demand for appraisal only with the consent of the Surviving Corporation. If
no petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, holders' rights to appraisal shall cease, and all holders of
shares of Axion Common Stock will be entitled to receive the consideration
offered pursuant to the Merger Agreement. Inasmuch as the Surviving Corporation
has no obligation to file such a petition, and has no present intention to do
so, any holder of shares of Axion Common Stock who desires such a petition to be
filed is advised to file it on a timely basis.
It is a condition to the obligation of BMS to effect the Merger that no
Dissenting Shares be outstanding at the Effective Time. See "Risk Factors".
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THE DISTRIBUTION
This section of the Proxy-Statement describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Agreement, the Indemnification Agreement, the Escrow Agreement and the Tax
Matters Agreement, the following descriptions do not purport to be complete and
are qualified in their entirety by reference to such agreements, which are
attached as Appendices B through E to this Proxy Statement/Prospectus,
respectively, and are incorporated herein by reference. All stockholders are
urged to read such agreements in their entirety.
Reasons for the Distribution
The Retained Business constitutes the only business, assets and liabilities
of Axion that BMS has agreed to acquire. As a result, the disposition of the
Retained Business will be effected through a series of sequential transactions,
including the Contributions, the Distribution and the Merger, all as set forth
in the Merger Agreement and the Distribution Agreement. The purpose of this
complex structure is to permit the disposition of the Retained Business on a
tax-free basis to Axion and its stockholders in a transaction in which Axion
stockholders will receive BMS Common Stock and will also retain their
proportionate equity interests in the Acquired Business in the form of AHC
Preferred Stock to be received in the Distribution. Accordingly, a "reverse
spinoff" structure was adopted pursuant to which the Acquired Business will be
transferred to AHC and its subsidiaries and the AHC Preferred Stock will, prior
to the Merger, be distributed to Axion stockholders in the Distribution.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the AHC Preferred Stock to be received by holders of Axion Common Stock in the
Distribution does not constitute a part of the consideration to be received by
Axion stockholders in the Merger. Axion stockholders are not being asked to
approve the Distribution, which is not subject to stockholder approval. Axion
stockholders should review the Information Statement attached hereto as Appendix
G for additional information with respect to the Distribution. Consummation of
the Distribution is a condition to the Merger.
Terms of the Distribution Agreement
The Preference Amount
Immediately prior to the Time as of which the Contributions are effective
(the "Time of Contributions") Axion will cause OTNC to cause OTN to distribute
to OTNC an amount equal to $13,615,147 (the "Preference Amount"), in full
satisfaction of all amounts that may be due as of, or in respect of any period
ending on or prior to, the Closing Date to OTNC in respect of its Capital
Account Prime Rate Amount and the General Partner Cumulative Preference Amount
(as each such term is defined in the Partnership Agreement). Notwithstanding the
preceding sentence, if the Closing Date occurs after September 30, 1996 and
Axion shall not have used Best Closing Efforts (as defined below) to cause the
Closing to occur on or prior to September 30, 1996, the Preference Amount will
be paid only to the extent of cash and cash equivalents held by OTN as of
September 30, 1996 (it being understood that for purposes of this paragraph the
amount of cash and cash equivalents held by OTN as of September 30, 1996 will be
reduced by the amount, if any, by which outstanding indebtedness for borrowed
money, or any guaranties in respect of any indebtedness for borrowed money of
any third party, in respect of which OTN is obligated on September 30, 1996 will
exceed $35,617,000). Notwithstanding that if OTNC fails to use Best Closing
Efforts it will not have received the full amount of the Preference Amount from
OTN to which it would otherwise have been entitled, under the terms of the Tax
Matters Agreement AHC shall nevertheless be obligated to indemnify Axion and BMS
for any taxes with respect to the income of OTN for all periods prior to June
30, 1996, including such income that is not distributed as a
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Preference Amount to OTNC by reason of the fact that OTNC will not have used
Best Closing Efforts. "Best Closing Efforts" means, in addition to Axion not
otherwise knowingly taking any action to frustrate or delay the Merger, the
following: (i) Axion will have diligently responded to all Commission comments
to the Form S-4 related to Axion or its subsidiaries (A) within five business
days after receipt by Axion or its counsel of any initial Commission comments to
the Form S-4 and (B) within a reasonably prompt period under the circumstances
after receipt by Axion or its counsel of any subsequent Commission comments to
the Form S-4; (ii) (A) in the event that the no-action relief requested by Axion
from the Commission with respect to the distribution of AHC Preferred Stock
without registration under the Securities Act is obtained from the Commission,
the Information Statement shall have been distributed to Axion stockholders at
the same time as this Proxy Statement/Prospectus is distributed to such Axion
stockholders or (B) in the event such no-action relief is not obtained from the
Commission either (I)(x) cause the Form S-1 to be filed within ten business days
after Axion has been finally advised orally or in writing that no-action relief
will not be granted and (y) diligently respond to all Commission comments to the
Form S-1 (1) within five business days after receipt by Axion or its counsel of
any initial Commission comments to the Form S-1 and (2) within a reasonably
prompt period under the circumstances after receipt by Axion or its counsel of
any subsequent Commission comments to the Form S-1 or (II)(x) cause the
information with respect to Axion and its Subsidiaries required to be included
in the Application to be made by the applicants to the Commissioner within five
business days after Axion has been finally advised orally or in writing that
no-action relief will not be granted and (y) diligently respond as promptly as
practicable to all requests and comments regarding the Application within a
reasonably prompt period under the circumstances after receipt by the applicants
or their respective counsel of any such requests or comments and (III) cause the
Commissioner to issue a permit to authorize the AHC Preferred Stock to be
included in the Distribution; and (iii) Axion will have within two business days
following notice to Axion of clearance by the Commission of the Form S-4 called
the Special Meeting for the purpose of approving the Merger and the transactions
contemplated by the Merger Agreement and the other Documents, with such meeting
to be held within twenty business days after the date such meeting is called.
The Contributions
Immediately prior to the Time of Contributions, OTN will distribute to
OTNC, which will in turn distribute to Axion, the Preference Amount. Immediately
prior to the Time of Distribution, (i) OPUS will contribute the OPUS Sub Assets
(as defined below) to OPUS Sub and OPUS Sub will assume the OPUS Sub Liabilities
(as defined below), (ii) OPUS will distribute the outstanding capital stock of
OPUS Sub to Axion and (iii) Axion will contribute all the assets of Axion and
its Subsidiaries (including the outstanding capital stock of OPUS Sub) other
than the OPUS Sub Assets (which will remain assets of OPUS Sub) and the Retained
Assets (as defined below) to AHC and AHC will assume all the Liabilities (as
defined below) of Axion and its subsidiaries other than the OPUS Sub Liabilities
(which will remain Liabilities of OPUS Sub) and the Retained Liabilities (as
defined below) (the transactions in clauses (i), (ii) and (iii), collectively,
the "Contributions"). "OPUS Sub Assets" means all the assets of OPUS other than
any such assets that are OPUS Station Assets and will include the OPUS Matrix
Software (as defined in the Distribution Agreement), all Contracts relating to
the use and installation of OPUS Matrix Software and all commitments relating to
the future use and installation of OPUS Matrix Software, including the contracts
and commitments scheduled in the Distribution Agreement; and certain other
assets scheduled in the Distribution Agreement. "OPUS Station Assets" means all
the assets of Axion and its subsidiaries that are primarily used by or are held
for use in or are necessary for the conduct of Axion's automated drug dispensing
business (the "OPUS Station Business"), including (a) the Pyxis Contract, as the
same may be amended and in effect as of the Time of Contribution, (b) all rental
contracts for all installed OPUS Station sites and all commitments for the
future installation of OPUS Station sites, as the same may be amended and in
effect as of the Time of Contribution, including the contracts and commitments
scheduled in the Distribution Agreement, (c) all intellectual property related
to the OPUS Station Business (including plans, drawings, product software and
other software used or useful to access data from and to operate OPUS Stations)
other than OPUS Matrix Software, (d) all information derived from OPUS Station
installations as described in a
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schedule to the Distribution Agreement ("OPUS Station Data") collected from
installed OPUS Stations prior to, at and after the Time of Contribution
including the installed OPUS Stations at sites subject to the contracts and
commitments scheduled in the Distribution Agreement, and (e) certain other
assets scheduled in the Distribution Agreement; provided, however, that no cash
or cash equivalents of Axion or any of its subsidiaries (other than the
Partnership) and no guarantees, letters of credit or foreign exchange contracts
of Axion or any of its subsidiaries (other than the Partnership) will constitute
OPUS Station Assets. "OPUS Sub Liabilities" means all the debts, liabilities,
commitments and obligations, whether fixed, contingent or absolute, matured or
unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown,
whenever or however arising and whether or not the same would be required by
GAAP to be reflected in financial statements or disclosed in the notes thereto
(collectively "Liabilities") of OPUS other than the Liabilities that are OPUS
Station Liabilities or are otherwise Retained Liabilities and include the
Liabilities scheduled in the Distribution Agreement. "Retained Assets" means (i)
the OPUS Station Assets; (ii) all the assets of the Partnership, all the assets
of OTNC and any other assets of Axion and its Subsidiaries that are primarily
used by or are held for use in or are necessary for the conduct of the business
of OTNC or the Partnership; (iii) all the outstanding capital stock of OTNC and
OPUS and the general partnership interest of OTNC in the Partnership; (iv)
subject to certain provisions of the Distribution Agreement, all current and
former insurance policies of Axion and its Subsidiaries in effect at or prior to
the Time of Contribution and the right to Insurance Proceeds (as defined in the
Distribution Agreement) thereunder; (v) the Retained Cash; (vi) all Unpaid
Intercompany Receivables (as defined in the Distribution Agreement) due from AHC
and its Subsidiaries to the Retained Company and its Subsidiaries after giving
effect to the transaction contemplated by the Distribution Agreement; (vii) any
BMS Tax Refunds (as such term is defined in the Tax Matters Agreement); (viii)
the "Oncology Therapeutics Network (TM)" and "Oncology Therapeutics Network
(SM)" trademarks, trade names, service marks, service names and all derivatives
thereof; and (ix) the assets scheduled in the Distribution Agreement.
"Retained Business" shall mean the OPUS Station Business, the business of
the Partnership, the Retained Assets and the Retained Liabilities. "Retained
Liabilities" means the OPUS Station Liabilities, any Liabilities of Axion and
its subsidiaries directly and solely related to the business of OTN including
certain liabilities scheduled in the Distribution Agreement, those Taxes (as
defined herein) and other items for which the BMS Indemnifying Parties have
agreed to indemnify the Axion Indemnified Parties (as defined herein) pursuant
to the Tax Matters Agreement, such other Liabilities of Axion and its
subsidiaries to the extent they are directly and primarily related to OTN and/or
the OPUS Station Business including certain liabilities scheduled in the
Distribution Agreement, the Axion Expenses, but only to the extent that such
expenses do not exceed $2 million. Any Liabilities of the Retained Companies to
the extent such Liabilities solely relate to or arise from events, occurrences,
actions, omissions, facts or circumstances that occur after the Effective Time
all Unpaid Intercompany Payables due from the Retained Company and its
Subsidiaries to AHC and its Subsidiaries after giving effect to the transactions
contemplated by the Distribution Agreement and the Liabilities scheduled in the
Distribution Agreement; provided, however, notwithstanding the foregoing, that
Retained Liabilities will not include any Liabilities described in the
definition of Assumed Liabilities. "OPUS Station Liabilities" means any
Liabilities of Axion, its subsidiaries and OTN directly and solely related to
the OPUS Station Business and includes certain Liabilities scheduled in the
Distribution Agreement. "Retained Cash" means (a) an amount in cash equal to the
excess, if any, of the Axion Expenses scheduled in the Merger Agreement over
$2,000,000, (b) any cash and cash equivalents held by the Partnership (after
giving effect to the payment of the Preference Amount in accordance with the
provisions of the Merger Agreement), (c) an amount in cash equal to the amount,
if any, by which the amount of JV Sales Taxes (as defined in the Tax Matters
Agreement) paid by the Partnership at or prior to the Time of Contribution
exceeds $667,402 and (d) an amount in cash equal to any amounts withheld from
employees as of the Closing Date related to employee benefit arrangements for
Continuing Axion Employees (as defined in the Distribution Agreement) or in
respect of payroll taxes and employee contributions to any Benefit Plan.
"Assumed Liabilities" means all Liabilities of Axion and its Subsidiaries, other
than Retained Liabilities, and includes (i) the Liabilities set forth in the
Distribution Agreement relating to the indemnification by AHC of the BMS
Indemnified Parties of liabilities relating to or
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arising from certain employee matters; (ii) those Taxes for which the AHC
Indemnifying Parties (as defined herein) have agreed to indemnify the BMS
Indemnified Parties pursuant to the Tax Matters Agreement; (iii) all Unpaid
Intercompany Payables due from AHC and its Subsidiaries to the Retained Company
and its Subsidiaries after giving effect to the transactions contemplated by
Section 5.2 of the Distribution Agreement; (iv) the OPUS Sub Liabilities; (v)
all Liabilities relating to or arising from claims of any stockholders,
directors, officers, employees or agents of Axion and its Subsidiaries related
to or arising from the execution by Axion or any of its subsidiaries of the
Distribution Agreement or the other Documents or the consummation of the
transactions contemplated thereby (including any claims for indemnification by
any officer or director of Axion or any of its subsidiaries pursuant to any
applicable law, the charter and by-laws or other governing instruments of Axion
or any such subsidiary or any indemnification agreement between Axion or any
such subsidiary and any such person (including the indemnification agreements
listed on Schedule 2); and (vi) those Liabilities scheduled in the Distribution
Agreement.
The Distribution
Effective immediately following the Contributions and immediately prior to
the Effective Time, each issued and outstanding share of AHC Common Stock will
be converted into that number of shares of AHC Preferred Stock equal to the
quotient of the number of shares of Axion Common Stock outstanding immediately
prior to the Time of Distribution (including any shares of Axion Common Stock
issued in connection with the conversion of Axion Preferred Stock to Axion
Common Stock and the exercise of Axion Options, in each case in connection with
the consummation of the Merger) divided by the number of shares of AHC Common
Stock outstanding immediately prior to the Time of Distribution. Axion will
declare and pay a dividend of all the outstanding AHC Preferred Stock to the
holders of Axion Common Stock followed by the distribution of certificates
representing one share of AHC Preferred Stock for each share of Axion Common
Stock held by each holder of record of Axion Common Stock, at the Time of
Distribution. Immediately following the Contributions and immediately prior to
the Effective Time, subject to the satisfaction or waiver of the conditions set
forth in the Distribution Agreement, the Axion Board will formally declare the
Distribution and Axion will effect the Distribution by delivery of certificates
for AHC Preferred Stock to the transfer agent for delivery to the holders of
Axion Common Stock entitled thereto. The Distribution will be deemed to be
effective upon notification by Axion to the transfer agent that the Distribution
has been declared and that the transfer agent is authorized to proceed with the
distribution of AHC Preferred Stock, which notification Axion agrees to deliver
promptly following such declaration.
Conditions to the Distribution
The obligations of Axion to consummate the Distribution are subject to the
fulfillment of each of the following conditions: (a) all the transactions or
obligations contemplated by the Distribution Agreement to be consummated or
performed at or prior to the Time of Distribution will have been successfully
consummated or so performed; (b) each condition to the closing of the Merger set
forth in the Merger Agreement (other than the completion of the Contributions
and the Distribution) will have been satisfied (or waived by the party for whose
benefit such condition exists); (c) the Axion Board will be reasonably satisfied
that, after giving effect to the Distribution, (i) AHC will not be insolvent and
will not have unreasonably small capital with which to engage in its businesses
and (ii) Axion's surplus would be sufficient to permit, without violation of
Section 170 of the DGCL, the Distribution; (d) all filings required to be made
with, and all consents, approvals and authorizations required to be obtained
from, any governmental entity in connection with the execution, delivery and
performance of the Distribution Agreement or the consummation of the
Contributions, the Distribution or the other transactions contemplated by the
Distribution Agreement will have been made or obtained; (e) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution will be in
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effect; and (f) Ernst & Young shall have reaffirmed its opinion that the
Distribution should qualify as a tax-free spinoff pursuant to Section 355 of the
Code.
Termination, Amendments and Waivers
Notwithstanding anything to the contrary therein, the Distribution
Agreement may be terminated and the transactions contemplated thereby abandoned
at any time prior to the Time of Distribution by mutual written consent of Axion
and AHC but only in the event the Merger is terminated by any party thereto in
accordance with the terms thereof. The Distribution Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto and consented to by BMS. By an instrument in writing, the parties
thereto may waive compliance by any other party with any term or provision of
the Distribution Agreement that such other party was or is obligated to comply
with or perform; provided that no such waiver by Axion will be effective unless
consented to by BMS.
Terms of the Indemnification Agreement
Indemnification by the AHC Indemnifying Parties
Pursuant to the Indemnification Agreement, AHC, OPUS Sub together with any
corporation, company or other entity (i) more than 81% of whose outstanding
shares or securities (representing the right to vote for the election of
directors or other managing authority) are, or (ii) which does not have
outstanding shares or securities (as may be the case in the partnership, joint
venture or unincorporated association), but more than 81% of whose ownership
interest representing the right to make decisions for such other entity is, in
each case, owned or controlled, directly or indirectly, by AHC (collectively,
the "81% AHC Subsidiaries", together with AHC and OPUS Sub, the "AHC
Indemnifying Parties"), and each Former Axion Stockholder will, jointly and
severally, indemnify, defend and hold harmless BMS, its direct and indirect
subsidiaries, including the Surviving Corporation and its subsidiaries
(including the Partnership) and their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives (collectively, the "BMS Indemnified Parties") from and against,
and pay or reimburse the BMS Indemnified Parties for all Indemnifiable Losses
(as defined below), as incurred: (a) to the extent relating to or arising from
(i) any breach of any representation or warranty by Axion or any of its
subsidiaries in the Merger Agreement or any other Document (or in any
certificate or similar document delivered pursuant thereto) or (ii) any breach
of any covenant of Axion or any of its subsidiaries in the Merger Agreement or
any other Documents requiring performance on or prior to the Closing Date or
(iii) any breach of any covenant of AHC and its subsidiaries in the Merger
Agreement or any other Documents requiring performance after the Closing Date;
(b)(i) in the case of the Form S-4 and, if required in connection with the
Distribution, the Form S-1 or the Application, relating to or arising from any
claim that there existed any untrue statement of a material fact or any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) in the case of this Proxy
Statement/Prospectus, any other Filings (as defined below) and, if required in
connection with the Distribution, the Information Statement, relating to or
arising from any claim that there existed any untrue statement of a material
fact or any omission of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; or (iii) in the case of any Required AHC
Documents or other Filings that are provided or required to be delivered to the
Axion stockholders, relating to or arising from any failure by Axion to so
provide or deliver such Required AHC Documents or other Filings; but only, in
the case of (i) or (ii), with respect to information furnished or to be
furnished by Axion or its representatives contained in or omitted from the
Filings; (c) relating to or arising from the Acquired Assets, the Assumed
Liabilities (including the failure by AHC or any of the AHC Companies to
otherwise perform or discharge such Assumed Liabilities), the Acquired
Businesses or the current, former or future operations or employees of AHC and
its subsidiaries' businesses whether such Indemnifiable Losses relate to or
arise from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted
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before, at or after the Effective Time, other than, in each case, any Retained
Liabilities; (d) relating to or arising from the current or former operations or
employees of Axion and its current or former subsidiaries' businesses whether
such Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring or existing before or at the
Effective Time, whether asserted before, or at the Effective Time, other than,
in each case, any Retained Liabilities; (e) relating to or arising from claims
of any stockholders, directors, officers, employees or agents of Axion and its
subsidiaries to the extent related to or arising from the execution by Axion or
any of its subsidiaries of the Indemnification Agreement or the other Documents
or the consummation of the transactions contemplated thereby (including any
claims for indemnification by any officer or director of Axion or any of its
subsidiaries pursuant to any applicable law, the charter and by-laws or other
governing instruments of Axion or any such subsidiary or any indemnification
agreement between Axion or any such subsidiary and any such person) (except for
any Indemnifiable Loss for which the AHC Indemnifying Parties are indemnified
pursuant to Section 3.01(c) of the Indemnification Agreement); (f) relating to
or arising from any Axion Expenses to the extent that such Axion Expenses were
not included in the schedule of Axion Expenses delivered to BMS pursuant to the
Merger Agreement and the aggregate amount of all Axion Expenses exceeds
$2,000,000; (g) relating to or arising out of (i) the breach of any term,
covenant or condition contained in the Partnership Agreement, the Trademark
License Agreement dated as of July 8, 1993 between BMS and the Partnership (the
"Trademark License Agreement") or any other agreement to which any of the
Exculpated Parties and the Partnership are parties (other than any breach by the
Limited Partner (as such term is defined in the Partnership Agreement), its
officers, directors, stockholders, employees or affiliates or any member of the
Management Committee appointed by the Limited Partner pursuant to Section
7.02(c) of the Partnership Agreement) or (ii) the gross negligence or wilful
misconduct by any Exculpated Party or its obligations under the Partnership
Agreement, the Trademark License Agreement or any other such agreement, in each
case relating to or arising out of events, occurrences, actions, omissions,
facts or circumstances occurring or existing at or prior to the Effective Time,
whether asserted at, prior to or after the Effective Time; (h) that are
Liabilities of the Partnership under Section 11(b) of the Sales Agency Agreement
dated as of July 8, 1993, as amended, between BMS and the Partnership, relating
to or arising out of events, occurrences, actions, omissions, facts or
circumstances occurring or existing at or prior to the Effective Time, whether
asserted at, prior to or after the Effective Time; or (h) incurred in connection
with the enforcement by the BMS Indemnified Parties of their rights to be
indemnified and held harmless under the Indemnification Agreement.
"Indemnifiable Losses" means, subject to the limitation of the indemnification
obligations under the Indemnification Agreement of the Former Axion Stockholders
to the amounts held in the BMS Stock Escrow Fund, ("BMS stock Escrow Fund") all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements, whether
or not resulting from third party claims, including interest and penalties
recovered by a third party with respect thereto and out-of-pocket expenses and
reasonable attorneys' and accountants' fees and expenses incurred in the
investigation or defense or any of the same or in asserting, preserving or
enforcing any of the rights of the AHC Indemnified Parties (as defined below) or
the BMS Indemnified Parties under the Indemnification Agreement, suffered by any
of the BMS Indemnified Parties or the AHC Indemnified Parties who or which may
seek indemnification under the Indemnification Agreement; provided, however,
that notwithstanding anything to the contrary set forth in the Indemnification
Agreement, Indemnifiable Losses will not include any such losses relating to or
arising from any breach of any representation, warranty or covenant contained in
Section 4.01(j) of the Merger Agreement or any other amount relating to Taxes
(as defined herein) or for which indemnity is payable under the Tax Matters
Agreement. "Filings" means the Form S-4, this Proxy Statement/Prospectus, the
Required AHC Documents or any other document filed or required to be filed with
the Commission or any state securities commission or otherwise provided, or
required to be delivered, to the stockholders of Axion or, following the
Distribution, the stockholders of AHC, in connection with the transactions
contemplated by the Merger Agreement or the other Documents, any preliminary or
final form thereof or any amendment or supplement thereto. "AHC Indemnified
Parties" means AHC and its direct or indirect subsidiaries and their respective
affiliates and each of their respective officers, directors, employees,
stockholders, agents and representatives. "Exculpated Parties" means OTNC, its
officers, directors, stockholders, employees, or affiliates, the Chairman of the
Management Committee
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(as such term is defined in the Partnership Agreement) or any other officer of
the Partnership or the members of the Management Committee appointed by OTNC
pursuant to the Partnership Agreement.
Limitations on Indemnification Obligations
The indemnification obligations of the AHC Indemnifying Parties for (i) any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that is directly related to OTN
will equal 50% of such Indemnifiable Loss, and (ii) any other Indemnifiable Loss
shall equal 100% of such Indemnifiable Loss. The AHC Indemnifying Parties will
not have any liability under the Indemnification Agreement with respect to any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that is directly related to OTN
or the OPUS Station Business unless the aggregate of all such Indemnifiable
Losses for which the AHC Indemnifying Parties would but for this sentence be
liable exceeds on an aggregate basis an amount equal to $500,000 and provided
that the AHC Indemnifying Parties' liability with respect to such Indemnifiable
Losses will in no event exceed $12,000,000. The indemnification obligations of
the AHC Indemnifying Parties under the Indemnification Agreement with respect to
(i) any Indemnifiable Loss of the type set forth in clause (a)(i) of
"--Indemnification by the AHC Indemnifying Parties" above or (ii) that directly
relates to OTN or the OPUS Station Business (other than Indemnifiable Losses
related to or arising from any breach of the representations and warranties in
Section 4.01(c), 4.01(n), or 4.01(p) of the Merger Agreement) will terminate on
March 31, 1998, (ii) any Indemnifiable Losses related to or arising from any
breach of the representations and warranties in Section 4.01(c), 4.01(n) or
4.01(p) of the Merger Agreement will terminate on the third anniversary of the
Effective Time and (iii) all other Indemnifiable Losses will not terminate.
Notwithstanding anything to the contrary set forth in the Indemnification
Agreement (except as provided in the following sentence), the indemnification
obligations of the Former Axion Stockholders under the Indemnification Agreement
will be limited to the amounts held in the BMS Stock Escrow Fund. The
limitations on the AHC Indemnifying Parties' liability under the Indemnification
Agreement as set forth in this paragraph will not apply to any Indemnifiable
Losses relating to or arising from fraud or any misrepresentation or breach of
which Axion, AHC, the 81% AHC Subsidiaries or their respective officers and
directors had knowledge or any intentional failure to perform or comply with any
covenant (collectively, "fraud"), and the AHC Indemnifying Parties shall be
jointly and severally liable for all Indemnifiable Losses with respect thereto;
provided, however, that a Former Axion Stockholder will be liable for
Indemnifiable Losses related to or arising from fraud only with respect to any
fraud by such Former Axion Stockholder. The indemnification obligations of the
AHC Indemnifying Parties under this Article II shall be subject to offset as
provided in the Tax Matters Agreement.
Indemnification by the BMS Indemnifying Parties
Pursuant to the Indemnification Agreement, BMS, Axion, OTNC, the
Partnership and OPUS (collectively, the "BMS Indemnifying Parties") will,
jointly and severally, indemnify, defend and hold harmless the AHC Indemnified
Parties from and against, and pay or reimburse the AHC Indemnified Parties for
all Indemnifiable Losses, as incurred: (a) relating to or arising from the
Retained Assets, the Retained Liabilities (including the failure by Axion or any
of its subsidiaries to pay, perform or otherwise discharge such Retained
Liabilities in accordance with their terms), whether such Indemnifiable Losses
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the Effective
Time; (b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger Agreement
or any other Document (or in any certificate or similar document delivered
pursuant thereto); (c) (i) in the case of the Form S-4 and, if required in
connection with the Distribution, the Form S-1 or the Application, relating to
or arising from any claim that there existed any untrue statement of a material
fact or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) in the case of
this Proxy Statement/Prospectus, any other Filings and, if required in
connection with the Distribution, the Information Statement, relating to or
arising from any claim that there
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existed any untrue statement of a material fact or any omission of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; but
only in each case with respect to information furnished or to be furnished by
BMS or its representatives contained in or omitted from the Filings; or (d)
incurred in connection with the enforcement by the AHC Indemnified Parties of
their rights to be indemnified, defended and held harmless under the
Indemnification Agreement.
Limitation on Indemnification Obligations
The indemnification obligations of the BMS Indemnifying Parties under the
Indemnification Agreement with respect to (a) any Indemnifiable Loss of the type
set forth in clause (b) of "--Indemnification by the BMS Indemnifying Parties"
above will terminate on March 31, 1998 and (b) all other Indemnifiable Losses
will not terminate.
Covenants
AHC and each of the 81% AHC Subsidiaries agrees that, unless BMS otherwise
consents in writing, neither AHC nor any of the 81% AHC Subsidiaries will: (i)
(A) in the case of AHC, liquidate, dissolve or wind up its affairs or (B) in the
case of any 81% AHC Subsidiary, liquidate, dissolve or wind up its affairs
unless the assets of such 81% AHC Subsidiary (or, if such 81% AHC Subsidiary
shall not be wholly owned, a proportionate amount of such assets equal to the
direct and indirect ownership interest of AHC in such 81% AHC Subsidiary) shall
have been distributed to or otherwise acquired by AHC; (ii) (A) merge with or
into or consolidate with any other person, or (B) sell, lease or otherwise
transfer all or substantially all the assets of AHC and the 81% AHC
Subsidiaries, taken as a whole (including by means of the sale of the capital
stock of any subsidiary) to any other person (in each case, whether in one or a
series of transactions), unless, in each case, such person explicitly agrees to
assume the obligations of AHC and the 81% AHC Subsidiaries under the
Indemnification Agreement, the Tax Matters Agreement or the Escrow Agreement
pursuant to an agreement reasonably satisfactory in form and substance to BMS
and its counsel; (iii) engage in any recapitalization or restructuring pursuant
to which any cash, securities or other property shall be distributed in respect
of its capital stock or effect any other distribution (by means of dividend,
redemption or otherwise) in respect of its capital stock (other than, in the
case of any 81% AHC Subsidiary, any such distribution to AHC); (iv) enter into
any transactions with affiliates of AHC or any 81% AHC Subsidiary unless (1) any
such transaction is between or among AHC and the 81% AHC Subsidiaries or (2) the
terms of such transactions are fair and reasonable to AHC or the 81% AHC
Subsidiaries, as the case may be, as in a comparable transaction made on an
arm's length basis between unaffiliated parties; or (v) agree to or otherwise
suffer any of the foregoing in (i), (ii), (iii) or (iv) above or otherwise take
any action or fail to take any action designed to restrict, reduce or otherwise
limit the rights of the BMS Indemnified Parties under the Indemnification
Agreement, the Tax Matters Agreement or the Escrow Agreement or the ability of
any BMS Indemnified Party to collect any amount owed to it under the
Indemnification Agreement, Tax Matters Agreement or the Escrow Agreement.
For purposes of this section, AHC and its subsidiaries acknowledge and
agree that OnCare and its subsidiaries shall be affiliates of AHC and the AHC
Subsidiaries.
AHC shall cause each of its subsidiaries that shall be or become an 81% AHC
Subsidiary on or after the date hereof to enter into an agreement, reasonably
satisfactory in form and substance to both BMS and its counsel and AHC and its
counsel, pursuant to which such Subsidiary shall agree to be bound by the terms
of each of the Indemnification Agreement, the Tax Matters Agreement and the
Escrow Agreement as if such Subsidiary were named an 81% AHC Subsidiary herein
and therein. "81% AHC Subsidiary" means any corporation, company or other entity
(i) more than 81% of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have
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outstanding shares or securities (as may be the case in a partnership, joint
venture or unincorporated association), but more than 81% of whose ownership
interest representing the right to make decisions for such other entity is,
owned or controlled, directly or indirectly, by AHC.
The foregoing provisions will terminate on the later of (a) the sixth
anniversary of the Effective Time and (b) the expiration of the statute of
limitations (including any extensions thereof arising from audits commenced on
or before such sixth anniversary) for all Federal income tax returns of the
Affiliated Group (as defined in the Tax Matters Agreement) for all taxable years
ending on or before the day on which the Effective Time occurs is in process,
provided that the foregoing provisions shall not terminate until such time as
any Tax Claims (as defined in the Tax Matters Agreement) relating to such audit
or contest have been settled and all liabilities related thereto satisfied.
See "Risk Factors" and "The Merger-Indemnification Matters; Escrow;
Appointment of AHC as Representative".
Terms of the Tax Matters Agreement
Prior to the Time of Distribution, BMS, BMS Sub, Axion, certain
subsidiaries of Axion, AHC, the 81% AHC Subsidiaries, the Partnership and the
Former Stockholders of Axion will enter into a Tax Matters Agreement which sets
forth each party's rights and obligations with respect to payments of Federal,
state, local or foreign Taxes for periods before and after the Merger and
related matters such as the filing of and right to tax returns and the control
of tax contests.
The Tax Matters Agreement specifically provides that: AHC, the 81% AHC
Subsidiaries and the Former Stockholders of Axion (collectively, the "AHC
Indemnifying Parties") will jointly and severally indemnify and hold harmless
BMS, the Surviving Corporation, OPUS, OTNC, the Partnership, their affiliates
and each of their respective officers, directors, employees, stockholders,
agents and representatives (collectively, the "BMS Indemnified Parties") from
all liabilities for Federal, state, local, foreign and other governmental taxes,
assessments, duties, fees, levies or similar charges of any kind including all
interest, penalties and additions imposed with respect to such amounts
(collectively, "Taxes") imposed on Axion, OPUS, OTNC or any member of Affiliated
Group (whether imposed directly or by reason of United States Treasury
Regulations Section 1.1502-76 or similar provisions) (i) for any pre-merger tax
period, including any Pre-JV Sales Taxes (but excluding any Retained Tax
Liabilities), which are in each case unpaid as of the Effective Time (the
"Pre-Merger Taxes"), such indemnified Taxes (ii) with respect to the
Contributions, (iii) as a result of the Distribution, (iv) as a result of the
provision of the OPUS Station Data (as defined in the Distribution Agreement) to
AHC, OnCare or any of their assignees, (v) with respect to the OPUS License
Agreement or (vi) in respect of the transfer of assets or rights from OnCare or
any of its subsidiaries or affiliates or any other affiliate of Axion and its
subsidiaries to Axion prior to the Distribution. The AHC Indemnifying Parties
shall also jointly and severally indemnify the BMS Indemnified Parties from all
liabilities for fifty percent (50%) of the excess of (I) any liability for any
unpaid Taxes (other than JV Sales Taxes) as of June 30, 1996 imposed on the
Partnership for all periods up to and including June 30, 1996 over (II)
$225,000, and 100% of any liability for JV Sales Taxes paid after June 30, 1996
in excess of $667,402; provided, however, that no indemnification shall be
payable with respect to any JV Sales Taxes to the extent payment of such JV
Sales Taxes increased the amount of "Retained Cash" pursuant to clause (c) of
the definition of "Retained Cash" in the Distribution Agreement. "Retained Tax
Liabilities" shall mean (W) any income Tax liability (including any liability
for any Tax measured by reference to income) of OTNC (or the Affiliated Group)
attributable to the allocation to OTNC of Taxable income of the Partnership
(whether or not such taxes are paid before or after the Effective Time) and any
other Taxes to the extent directly attributable to the operation of the
Partnership, in each case for the period beginning on July 1, 1996, and ending
on the day on which the Effective Time occurs and in each case determined in
accordance with certain principles provided therein and (further evidence of
doubt) in the case of Taxes measured by reference to
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income, by assuming that such income is subject to Tax at the applicable
federal, state and local tax rate as otherwise provided therein, (X) any income
Tax liability (including any liability for any Tax measured by reference to
income) to the extent directly attributable to the reallocation of Partnership
income by the IRS or any other governmental agency from BMOTN to OTNC, (Y) all
liabilities for any unpaid Taxes as of June 30, 1996 imposed on the Partnership
for all periods up to and including June 30, 1996 that are not indemnified by
the AHC Indemnifying Parties pursuant to the preceding sentence, and (Z) any Tax
liabilities relating to the operations, assets or activities of a BMS Entity
(other than the Partnership). "Pre-JV Sales Taxes" shall mean any liability of
Axion with respect to unpaid sales and use Taxes on sales prior to the date of
formation of the Partnership. "JV Sales Taxes" shall mean any liability of the
Partnership with respect to unpaid sales and use Taxes on sales prior to
September 1, 1994.
BMS, Axion, OTNC, OPUS and the Partnership (collectively, the "BMS
Indemnifying Parties") shall jointly and severally indemnify and hold harmless
AHC, the Subsidiaries, their affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives (collectively,
the "Axion Indemnified Parties") (A) from all liability for Taxes imposed on
Axion, OTNC, OPUS or the Partnership for any Post-Merger Tax Period and (B) for
any Retained Tax Liabilities.
Other provisions of the Tax Matters Agreement provide AHC with the ability,
under certain circumstances, to control tax contests relating to a claim for
which AHC would indemnify the BMS Indemnified Parties and, under certain
circumstances, allow AHC to obtain refunds for taxes paid by Axion prior to the
Effective Time, up to a certain threshhold.
See "Risk Factors" and "The Merger--Indemnification Matters; Escrow;
Appointment of AHC as Representative."
Terms of the Escrow Agreement
Deposit of Escrowed Property
Pursuant to the Escrow Agreement, (a) the Exchange Agent, on behalf of the
Former Axion Stockholders, will deposit into escrow, and the Escrow Agent will
acknowledge receipt of, a number of shares of BMS Common Stock equal to
$5,000,000 divided by the Average Value of BMS Common Stock, rounded to the
nearest whole share, which amount will be deemed to have been deposited by the
Former Axion Stockholders on a pro rata basis from the shares of BMS Common
Stock to be issued and delivered to each Former Axion Stockholder with respect
to its shares of Axion Common Stock pursuant to the Merger Agreement as
described under "The Merger--Terms of the Merger--Conversion of Axion Common
Stock in the Merger" herein, calculated based on the ratio of the number of
shares of BMS Common Stock to be so issued and delivered to such Former Axion
Stockholder with respect to its shares of Axion Common Stock to the aggregate
number of shares of BMS Common Stock to be so issued to all the Former Axion
Stockholders with respect to their shares of Axion Common Stock. Such shares
together with any dividends and distributions with respect to such shares as set
forth in the Merger Agreement and any income received from the investment
thereof, as on deposit or invested from time to time in accordance with the
terms of the Escrow Agreement are referred to as the "Escrowed Shares", and (b)
AHC will deposit, or cause to be deposited into escrow, and the Escrow Agent
will acknowledge receipt of, $5,000,000 in cash. Such cash, together with any
income received thereon, as on deposit or invested from time to time in
accordance with the terms of the Escrow Agreement, is referred to as the
"Escrowed Cash" (the Escrowed Shares and the Escrowed Cash together being the
"Escrowed Property"). During the term of the Escrow Agreement, BMS will, from
time to time and concurrently with the payment thereof, (a) deliver to the
Escrow Agent for deposit in accordance with the terms of the Indemnification
Agreement, all non-taxable stock dividends and other non-taxable distributions
made with respect to the Escrowed Shares and (b) deliver to the Escrow Agent,
who will promptly distribute the same to the Former Axion Stockholders, all
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cash distributions and other taxable distributions (other than taxable
distributions representing the proceeds of a sale or acquisition or a
substantial restructuring in connection with a sale or acquisition of only BMS)
made with respect to the Escrowed Shares BMS and each AHC Indemnifying Party
acknowledge and agree that, to the extent and so long as any of the Escrowed
Property is held by the Escrow Agent hereunder, BMS shall have, as of and from
the date such Escrowed Property is received by the Escrow Agent, a perfected
first priority security interest in such Escrowed Property to secure the payment
of the amount, if any, payable by an AHC Indemnifying Party pursuant to the
Indemnification Agreement and the Tax Matters Agreement. Each of BMS and each of
the AHC Indemnifying Parties agree that the Escrowed Shares will be voted by the
Escrow Agent with respect to all matters as to which the holders of BMS Common
Stock are entitled to vote in accordance with written instructions from AHC as
the representative of the Former Axion Stockholders AHC agrees that if any
Former Axion Stockholder provides AHC with written directions as to how to vote
the Escrowed Shares with respect to any matter, AHC will instruct the Escrow
Agent to vote such number of Escrowed Shares as are beneficially held for such
Former Axion Stockholder as so directed by such Former Axion Stockholder, and if
no such directions are received with respect to particular Escrowed Shares on
any matter for which such Escrowed Shares may be voted, AHC will direct the
Escrow Agent to abstain from voting such Escrowed Shares with respect to such
matter.
Disposition of Escrowed Property
At any time on or prior to the Escrowed Cash Termination Date (as defined
below), BMS may deliver a certificate to the Escrow Agent requesting delivery of
Escrowed Property to BMS, and the Escrow Agent will deliver the Escrowed
Property to BMS to the extent and at the time provided in accordance with the
Escrow Agreement; provided, however, that (i) no distribution of Escrowed
Property will be made in respect of any Indemnified Obligation (as defined
below) related to a liability for Taxes for which a BMS Indemnified Party is
indemnified pursuant to Section 1 of the Tax Matters Agreement unless and until
such time as such liability for Taxes will be deemed liquidated and therefore
payable in accordance with the provisions of Section 9 of the Tax Matters
Agreement. "Indemnified Obligation" includes an Indemnified Loss a BMS
Indemnified Party has incurred against which such BMS Indemnified Party is
entitled to be indemnified pursuant to the Indemnification Agreement or Taxes a
BMS Indemnified Party is liable for against which such BMS Indemnified Party is
entitled to be indemnified pursuant to the Tax Matters Agreement, (ii) after the
Escrowed Shares Termination Date (as defined herein), no Escrowed Shares shall
be released to BMS except with respect to an Escrowed Shares Pending Claim (as
defined herein) and (iii) after the Second Anniversary Date (as defined herein),
Second Anniversary Cash shall be released to BMS only with respect to Second
Anniversary Pending Claims (as defined herein). For purposes of the foregoing,
the amount of Second Anniversary Cash as of any date shall equal the excess, if
any, of the amount of Escrowed Cash on deposit with the Escrow Agent on such
date over the amount specified in clause (A) of the definition of "Retained
Escrow Amount" (as defined herein) calculated as of such date.
Immediately following the Escrowed Shares Termination Date (as defined
below), if either (a) both BMS and AHC deliver a certificate to the Escrow Agent
or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers a
copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
as the representative of the Former Axion Stockholders such number of Escrowed
Shares (rounded to the nearest whole share) that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the Escrowed Share
Termination Date multiplied by the Average Value of BMS Common Stock over (y)
the amount of any unpaid Escrowed Stock Pending Claims (as defined below) on the
Escrowed Share Termination Date. Thereafter, if as of the last day of any fiscal
quarter following the Escrowed Share Termination Date, Escrowed Shares remain on
deposit with the Escrow Agent, and either (a) both BMS and AHC deliver a
certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC,
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(ii) delivers a copy of such certificate to BMS and (iii) does not, within 15
business days following delivery of such certificate to BMS, receive written
notice from BMS objecting to such certificate given by AHC, the Escrow Agent
will deliver to AHC as the representative of the Former Axion Stockholders the
number of Escrowed Shares that equals, when multiplied by the Average Value of
BMS Common Stock, the excess, if any, of (x) the number of Escrowed Shares on
deposit with the Escrow Agent on the last day of such fiscal quarter multiplied
by the Average Value of BMS Common Stock over (y) the amount of any unpaid
Escrowed Shares Pending Claims on the last day of such fiscal quarter. "Escrowed
Shares Pending Claims" means all Pending Claims (as defined below) existing on
the Escrowed Shares Termination Date. The amount of any Escrowed Share Pending
Claim on any date will be determined in accordance with the provisions of the
Escrow Agreement. "Escrowed Shares Termination Date" means the earlier to occur
of (i) one year after the date of the Escrow Agreement and (ii) complete
distribution of the Escrowed Shares in satisfaction of claims for Indemnified
Obligations.
Immediately following the second anniversary of the date of the Escrow
Agreement (the "Second Anniversary Date"), if either (a) both BMS and AHC
jointly deliver a certificate to the Escrow Agent or (b) the Escrow Agent (i)
receives a certificate from AHC, (ii) delivers a copy of such certificate to BMS
and (iii) does not, within 15 business days following delivery of such
certificate to BMS, receive written notice from BMS objecting to the certificate
given by AHC, the Escrow Agent will deliver to AHC an amount in cash equal to
the excess, if any, of Escrowed Cash on deposit with the Escrow Agent as of the
Second Anniversary Date over the Retained Escrow Amount on the Second
Anniversary Date. Thereafter, if as of the last day of any fiscal quarter
following the Second Anniversary Date, Escrowed Cash remains on deposit with the
Escrow Agent and either (a) both BMS and AHC deliver a certificate to the Escrow
Agent or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers
a copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
an amount in cash equal to the excess, if any, of Escrowed Cash on deposit with
the Escrow Agent as of the last day of such fiscal quarter over the Retained
Escrow Amount as of the last day of such fiscal quarter. "Retained Escrow
Amount" means, as of any date, the sum of (i) an amount, if any, equal to the
excess of $1,000,000 over the aggregate amount, if any, of Escrowed Cash that
shall have been released during the period from the Second Anniversary Date to
such date in respect of any Pending Claim that was not an existing Pending Claim
at any time on or prior to the Second Anniversary Date and (ii) the amount, if
any, released to AHC pursuant to the paragraph below from and after the Escrowed
Cash Termination Date and (B) the amount of any unpaid Second Anniversary
Pending Claims on such date. "Second Anniversary Pending Claims" means all the
Pending Claims existing on the Second Anniversary Date (and, for the avoidance
of doubt, includes all Escrowed Shares Pending Claims existing on such date).
The amount of any Second Anniversary Pending Claim on any date will be
determined as provided in the Escrow Agreement, provided that, for all purposes
of this paragraph, the amount of unpaid Second Anniversary Pending Claims on the
last day of any fiscal quarter ending after the Second Anniversary Date will be
reduced by an amount equal to (x) the number of Escrowed Shares on deposit with
the Escrow Agent on the last day of such fiscal quarter (such number to be
determined based on the assumption that any Escrowed Shares that are to be
delivered to AHC as the representative of the Former AHC Stockholders in respect
of the last day of such fiscal quarter as provided in the second sentence of the
paragraph above will have been so delivered and will not be on deposit with the
Escrow Agent on the last day of such fiscal quarter), if any, multiplied by (y)
the Average Value of BMS Common Stock.
Immediately following the Escrowed Cash Termination Date, if either (a)
both BMS and AHC deliver a certificate to the Escrow Agent or (b) the Escrow
Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC an amount
equal to the excess, if any, of Escrowed Cash on deposit with the Escrow Agent
as of the Escrowed Cash Termination Date (calculated as provided below) over an
amount equal to any unpaid Final
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Pending Claims (as defined below) on the Escrowed Cash Termination Date.
Thereafter, if as of the last day of any fiscal quarter following the Escrowed
Cash Termination Date Escrowed Cash remains on deposit with the Escrow Agent and
either (a) both BMS and AHC deliver a certificate to the Escrow Agent or (b) the
Escrow Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC an amount
equal to the excess, if any, of Escrowed Cash on deposit with the Escrow Agent
as of the last day of such fiscal quarter (calculated as provided below) over an
amount equal to any unpaid Final Pending Claims on the last day of such fiscal
quarter. For purposes of this paragraph, the amount of any Escrowed Cash on
deposit with the Escrow Agent will be calculated by treating the amount, if any,
of Escrowed Cash that is to be delivered to AHC pursuant to the paragraph above
on such date as having been so delivered and as not being on deposit with the
Escrow Agent on such date. "Final Pending Claims" means all Pending Claims
existing on the Escrowed Cash Termination Date (and, for the avoidance of doubt,
includes all Escrowed Shares Pending Claims and Second Anniversary Pending
Claims existing on such date). The amount of any Final Pending Claim on any date
will be determined as provided in the Escrow Agreement, provided that, for
purposes of this paragraph the amount of unpaid Final Pending Claims on the last
day of any fiscal quarter ending after the Escrowed Cash Termination Date will
be reduced by an amount equal to (x) the number of Escrowed Shares on deposit
with the Escrow Agent on the last day of such fiscal quarter (such number to be
determined based on the assumption that any Escrowed Shares that are to be
delivered to AHC as the representative of the Former AHC Stockholders in respect
of the last day of such fiscal quarter is provided in the second sentence of the
second paragraph of "--Disposition of Escrowed Property" above will have been so
delivered and will not be on deposit with the Escrow Agent on the last day of
such fiscal quarter), if any, multiplied by (y) the Average Value of BMS Common
Stock. The "Escrowed Cash Termination Date" means the earlier to occur of (i)
six years after the date of the Escrow Agreement and (ii) complete distribution
of the escrowed cash in satisfaction of claims for Indemnified Obligations.
Either BMS or AHC may deliver to the Escrow Agent a certificate accompanied
by a final and nonappealable award or order of a court of competent jurisdiction
(a "Court Order") with respect to the payment of all or any portion of the
Escrowed Property requesting delivery of Escrowed Property to BMS, AHC or such
other person(s) as may be specified in such award or order. Such certificate
also will be accompanied by an opinion of outside counsel to the effect that the
applicable court award or order is final and nonappealable. In either such case,
the Escrow Agent will deliver all or a portion of the Escrowed Property to BMS
or AHC, as the case may be, in the amount specified in the Court Order.
If AHC has delivered to the Escrow Agent and BMS at any time within 30 days
before or after the due date (including extensions) for payment by AHC of its
final Federal income tax liability for a taxable year (or, if later, 30 days
after the Escrow Agent supplies all information relating to the income realized
with respect to the Escrowed Cash necessary to prepare the certificate referred
to in this paragraph a certificate setting forth the amount of Federal and State
of California income tax due from AHC with respect to any taxable income
realized with respect to the Escrowed Cash for such taxable year (based on the
assumption that AHC is, with respect to such income, subject to Federal and
State of California income tax at the highest regular marginal tax rate
applicable to corporations for such year), and the accuracy and completeness of
such certificate is certified by Ernst & Young or such other nationally
recognized accounting firm chosen by AHC and reasonably satisfactory to BMS,
then the Escrow Agent will pay to AHC in cash the amount set forth in such
Certificate no more than fifteen days after receipt of such Certificate. The
Escrow Agent will use commercially reasonable efforts to supply to AHC the tax
information referred to above prior to the start of the 60-day period referred
to above.
All distributions under the Escrow Agreement that are not the subject of a
dispute will be made no later than 20 days from receipt of a certificate and
will be made from the Escrowed Shares and/or the Escrowed Cash, as the case may
be, in accordance with the provisions described above. Distributions made to BMS
pursuant to the
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provisions described above will first be made from any Escrowed Shares on
deposit and then, to the extent so required, from any Escrowed Cash.
Distributions made pursuant to the preceding paragraph will be deemed to have
been made from the Escrowed Cash.
Distributions for Indemnified Obligations
At any time on or prior to the Escrowed Cash Termination Date, BMS may
deliver to the Escrow Agent a certificate (i) stating that (A) a BMS Indemnified
Party has incurred an Indemnifiable Loss against which such BMS Indemnified
Party is entitled to be indemnified pursuant to the Indemnification Agreement or
(B) a BMS Indemnified Party is liable for Taxes against which such BMS
Indemnified Party is entitled to be indemnified pursuant to the Tax Matters
Agreement (each, an "Indemnified Obligation"), (ii) stating the aggregate amount
of such Indemnified Obligation (or, in the case of an unliquidated Indemnified
Obligation, a good faith and reasonable estimate thereof) and (iii) specifying
in reasonable detail the nature of each item included in such Indemnified
Obligation (an "Indemnification Item"), the amount thereof and the date on which
such Indemnification Item was paid or incurred; provided, however, that BMS may
not deliver to the Escrow Agent a certificate stating that a BMS Indemnified
Party is liable for Taxes against which such BMS Indemnified Party is entitled
to be indemnified pursuant to the Tax Matters Agreement unless and until any of
the following will have occurred: (a) a Tax Return will have been filed as
provided in the Tax Matters Agreement showing such Taxes to be due and payable
and the full amount of such Taxes will not have been paid at the time such Tax
Return was filed; (b) a Taxing Authority will have asserted in writing or
determined that there is a deficiency with respect to such Taxes; (c) except
with respect to any claim for indemnification for Taxes relating in any respect
to (i) the Contributions, the Distribution, the Merger or any of the other
Transactions, (ii) any sales or use Taxes, other than (A) Pre-JV Sales Taxes,
(B) JV Sales Taxes and (C) any liability of any BMS Indemnified Party with
respect to unpaid sales and use taxes on rentals of OPUS Station machines, and
(iii) the distribution of the stock of OnCare by Axion, BMS will have received
an opinion of a nationally recognized accounting firm or law firm reasonably
acceptable to AHC that it is more likely than not that such Taxes will be
properly payable; or (d) there will have been a "determination" (as defined in
Section 1313 of the Code) that such Taxes are due and payable.
If AHC objects to the Indemnified Obligation specified in such certificate,
AHC will, within 10 business days after delivery of the written notice
containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent will deliver a copy of such Reply
Certificate to BMS. BMS and AHC will negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
If no Reply Certificate is delivered with respect to any certificate or any
Indemnification Item contained therein, then AHC will be deemed to have
acknowledged BMS's right to receive any amount or amounts specified in such
certificate (or the undisputed portion thereof), and the Escrow Agent will
transfer to BMS, Escrowed Property in an amount equal to the undisputed amount
claimed in such certificate (plus interest at a rate per annum equal to the
prime rate announced from time to time by The Chase Manhattan Bank on such
amount from the later of (i) the date of such certificate and (ii) the date such
indemnified amount was actually incurred by the applicable Indemnified Party),
all in accordance with the procedures set forth in the Escrow Agreement.
If the Escrow Agent receives a Reply Certificate in a timely manner, the
disputed amount requested for reimbursement pursuant to the applicable
certificate will be held by the Escrow Agent and will not be released to BMS
except in accordance with either (i) written instructions signed by each of an
authorized officer of BMS and AHC or (ii) the final nonappealable judgment of a
court having jurisdiction over the matters relating to the
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claim by the applicable Indemnified Party for indemnification from AHC
accompanied by an opinion of outside counsel to the effect that the applicable
judgment is final and nonappealable, at which date the portion of the amount due
to such Indemnified Party determined pursuant to clauses (i) or (ii) in this
paragraph will promptly be paid to BMS in accordance with the procedures set
forth in the Escrow Agreement.
The parties hereto agree that the payment of Indemnified Obligations
contemplated by the Escrow Agreement is not, and will not be deemed to be, a
waiver of any right, claim or amount to which BMS may be entitled under the
Indemnification Agreement, the Tax Matters Agreement or otherwise, including any
claim relating to an Indemnified Obligation, to the extent that the amount paid
to BMS pursuant hereto is insufficient to satisfy the entire amount of any such
Indemnified Obligation.
Notwithstanding anything to the contrary set forth in "--Disposition of
Escrowed Property" and "--Distributions for Indemnified Obligations", upon
receipt of written notice from the Escrow Agent containing a copy of a
certificate relating to an Indemnified Obligation the final amount of which will
have been liquidated, AHC may elect to pay to BMS such amount in cash in lieu of
payment being made from the Escrowed Property if AHC, within ten business days
after delivery of the written notice containing a copy of the certificate, will
have delivered to BMS and the Escrow Agent a written notice stating its election
to make such cash payment and, thereafter, will have made such cash payment to
BMS on the earliest date that a payment of Escrowed Property would otherwise be
made hereunder with respect to such Indemnified Obligation; provided, however,
that such Indemnified Obligation will constitute a Pending Claim for all
purposes of this Agreement until the time the full amount of such cash payment
is actually received by BMS.
Pending Claims
"Pending Claims" means, at any time, (a) all indemnification claims with
respect to which a certificate will have been delivered at or prior to such time
with respect to which the final amount of such claims will have been liquidated
and which will not have been paid in full at such time whether because the
payment of such amount is in dispute or otherwise and (b) all indemnification
claims with respect to which a Certificate will have been delivered and with
respect to which the final amount of such claim will not have been liquidated.
The amount of any Pending Claim as of any date will be equal to BMS's
reasonable estimate of such amount. If any Pending Claim exists on the last day
of any fiscal quarter during the term of the Escrow Agreement, not later than 10
business days after the last day of such fiscal quarter, BMS will deliver to the
Escrow Agent a certificate (a "Quarterly Certificate") setting forth BMS's
reasonable estimate of the amount of each then existing Pending Claim as of the
last day of such fiscal quarter, provided that, if BMS will not deliver a
Quarterly Certificate in respect of any fiscal quarter or will not include in
such Quarterly Certificate all Pending Claims existing on the last day of such
fiscal quarter, the amount of each Pending Claim (or the amount of any Pending
Claim not included in such Quarterly Certificate, as applicable) will be the
amount of each such Pending Claim set forth in the most recent Certificate
(including any Quarterly Certificate) delivered by BMS to the Escrow Agent in
respect of the amount of such Pending Claim, provided further that failure of
BMS to deliver a Quarterly Certificate in respect of any fiscal quarter will not
affect in any manner the obligations of the AHC Indemnifying Parties under the
Escrow Agreement, the Indemnification Agreement or the Tax Matters Agreement or
the rights of BMS or any other BMS Indemnified Party thereunder.
If AHC reasonably objects to the amount of any Pending Claim specified in
any certificate delivered pursuant to the Escrow Agreement, AHC will, within 10
business days after delivery of such certificate, deliver to the Escrow Agent a
certificate (the "Amount Certificate"), (i) specifying each such amount to which
AHC reasonably objects and (ii) specifying in reasonable detail the nature and
basis for each such objection. Within five business days of delivery to the
Escrow Agent of the Amount Certificate, the Escrow Agent will deliver a copy of
such Amount Certificate to BMS. BMS and AHC will negotiate in good faith for a
period of 30 days
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after delivery by the Escrow Agent to BMS of such Amount Certificate to reach a
written resolution of any matters raised in the Amount Certificate and, if such
matters are not resolved within a 30-day period, either party may bring an
action to resolve such dispute as provided in the Escrow Agreement.
Notwithstanding the foregoing, the amount of any Pending Claim with respect to
which an Amount Certificate will have been delivered will be for all purposes of
the Escrow Agreement the amount reasonably determined by BMS as provided in the
paragraph above unless and until such time as the Escrow Agent either (a)
receives written instructions signed by an authorized officer of each of BMS and
AHC adjusting the amount of such Pending Claim or (b) the final nonappealable
judgment of a court having jurisdiction over the matters relating to the claim
by the applicable BMS Indemnified Party for indemnification from any AHC
Indemnifying Party adjusting the amount of such Pending Claim accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date, in the event that the Escrow Agent will have
received an Amount Certificate from AHC within the time frame set forth above,
the amount of the Pending Claim for all purposes of this Agreement will be
adjusted to the amount determined pursuant to clauses (a) or (b) of this
sentence.
See "Risk Factors" and "The Merger-Indemnification Matters; Escrow;
Appointment of AHC as Representative".
EFFECT OF TRANSACTIONS ON
AXION EMPLOYEES AND AXION BENEFIT PLANS
Transfer of Employment
Each person listed on a schedule to the Distribution Agreement (the
"Transferred Employee Schedule") will be transferred to AHC effective upon the
Time of Distribution (the "Transferred Employees"). It is intended that all
employees of Axion, OPUS, OTN and OTNC who are not listed on the Transferred
Employee Schedule other than those employees listed on a schedule of Axion
continuing employees (the "Continuing Employee Schedule") will be deemed
Transferred Employees whether or not listed on the Transferred Employee
Schedule. Prior to the Time of Distribution, AHC will offer employment to each
Transferred Employee on such terms and conditions (including salary and benefit
level) that are substantially equivalent to the terms and conditions of the
employee's employment with Axion, OPUS, OTN or OTNC, as the case may be,
immediately prior to the Time of Distribution. Any Transferred Employee not
actively-at-work as of the date immediately following the Time of Distribution
will nonetheless be deemed to be an employee of AHC as of such date for all
purposes and will be covered under the benefit plans and arrangements of AHC to
the fullest extent permitted by such plans and arrangements. To the extent any
Transferred Employee is not able to be covered under any benefit plans or
arrangements of AHC to the same extent that such Transferred Employee would have
been covered had he or she not been included as a Transferred Employee, AHC will
bear full responsibility to provide the level of benefits that such Transferred
Employee would have otherwise received. AHC will recognize each Transferred
Employee's prior service with Axion, AHC, OPUS, OTN and OTNC and all members of
Axion's controlled group within the meaning of Section 414(b), (c), (m), and (o)
of the Code for all purposes under each employee benefit plan, policy or
arrangement of AHC. AHC will be solely liable for all liabilities, costs and
expenses arising from any Transferred Employee's failure or inability, for any
reason, to accept AHC's offer of employment and commence or continue such
employment with AHC following the Time of Distribution, including any and all
severance or termination benefits, benefit continuation obligations, or
employment-related claims.
BMS has offered continuing employment to the persons listed on the
Continuing Employee Schedule (each a "Continuing Employee").
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OTNC Employment Agreements
OTNC has entered into an employment agreement with David Levison (the
"Employment Agreement"). The Employment Agreement will become effective only on
the Closing Date.
David Levison commences employment under the Employment Agreement on the
Closing Date and his employment continues for a period of two years. From the
Closing Date through the second anniversary of the Closing Date, David Levison
will serve as President of OTNC.
The Employment Agreement provides that David Levison will receive a base
salary of $220,000 for the period commencing on the Closing Date and ending on
the first anniversary of the Closing Date, and an annual base salary of $240,000
for the period commencing on the day following such anniversary and ending on
the second anniversary of the Closing Date. Levison will be eligible for a bonus
for 1996 of $112,000, which is payable on February 1, 1997. For 1997 and the
portion of 1998 that falls within the term of the Employment Agreement,
Levison's bonus will be determined in accordance with the terms and conditions
set forth in the Bristol-Myers Squibb Company Performance Incentive Plan,
provided, however, that Levison's target bonus will not be less than 27% of his
base salary. Levison's actual bonus will be based upon the extent to which
actual pretax earnings for a given plan year exceed or fall short of budgeted
pretax earnings. One half of Levison's bonus will relate to the pretax results
of OTNC and the other half will relate to the pretax results of Bristol-Myers
Squibb Oncology/Immunology division. In addition, Levison is entitled to receive
a special retention bonus of $50,000 on the first day after the first
anniversary of the Closing Date and a special retention bonus of $100,000 on the
first day after the second anniversary of the Closing Date, provided in each
case that he is employed by OTNC on such anniversary. Levison will also be
entitled to participate in all retirement and welfare benefit plans of BMS on
the same basis as other key employees of BMS. Levison will receive an option to
purchase 5,500 shares of BMS Common Stock under the BMS 1983 Stock Option Plan
and a car allowance of $7,000 per year.
If OTNC terminates the employment of David Levison without cause, or he
terminates his employment because OTNC (i) materially changes his duties and
responsibilities, (ii) reduces his base salary or target bonus or (iii) requires
him to transfer to a new work location which is more than 20 miles more distance
from Levison's primary residence than was his work location immediately prior to
the transfer, OTNC will be obligated to pay severance to Levison by continuing
to pay his base salary for the greater of 12 months or the remaining balance of
the Employment Agreement. Levison will also be entitled to continued medical,
dental and life insurance benefits through the term of the Employment Agreement.
Payment of these severance amounts are conditioned upon Levison not engaging in
any deliberate act or omission which would be detrimental or damaging to the
good will of OTNC or BMS or materially damaging to OTNC's or BMS's relationships
with its customers, suppliers or employees.
If David Levison's employment is terminated by OTNC for cause, all
compensation ceases as of the termination date. If Levison dies or becomes
disabled during the term of the Employment Agreement, all compensation payable
under the Employment Agreement ceases upon death or termination of employment
due to disability.
Throughout the term of the Employment Agreement and for a period of one
year after termination of his employment, David Levison is restricted in his
ability to engage in a business which competes with the businesses of OTNC.
During his employment and after termination thereof, Levison is prohibited from
disclosing confidential information concerning the business of OTNC. In
addition, during the term of the Employment Agreement and for a two-year period
thereafter, Levison is restricted from soliciting any employee of OTNC to leave
OTNC in order to accept employment with any other company.
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OTNC has entered into employment agreements substantially similar to David
Levison's (other than compensation amounts) with Warren Dodge, Bret Brodowy,
Michael Cunningham, Lynn Hammerschmidt and James Adams. Warren Dodge will serve
as Senior Vice President and General Manager of OTNC, Bret Brodowy as Vice
President of Automated Technologies, Michael Cunningham as Vice President of
Purchasing and Development, Lynn Hammerschmidt as Vice President of Marketing
and James Adams as Vice President of Customer Service. These additional
employment agreements contain similar severance, non-compete, confidentiality
and non-solicitation provisions to those contained in David Levison's Employment
Agreement. Certain of these employees will receive shares of BMS Common Stock
through the Merger. See "The Merger--Interests of Certain Persons in the
Transactions".
Axion Indemnification Agreements
Axion has entered into certain indemnification agreements with its
directors and officers. See "The Merger--Interests of Certain Persons in the
Transactions".
Transfer of Plans
Savings Plan
The Distribution Agreement provides that immediately prior to the Time of
Distribution, the Axion, Inc. 401K Profit Sharing Plan (the "Axion 401K Plan")
will be divided into two plans, each plan substantially identical to the Axion
401K Plan. One such plan will be maintained by Axion and will cover only those
participants who are Continuing Employees (the "New Axion 401K Plan") and one
such plan will cover all other participants in the Axion 401K Plan, including
all participants who are Transferred Employees, retirees and vested terminated
participants in the Axion 401K Plan on the Time of Distribution (the "AHC 401K
Plan"). As of the Time of Distribution, the AHC 401K Plan will be transferred to
and assumed by AHC. As soon as practicable following the Time of Distribution,
Axion will cause an amount in cash (or property acceptable to AHC) to be
transferred from the trust under the Axion 401K Plan to the trust under the AHC
401K Plan equal to the sum of the account balances of (i) all Transferred
Employees, (ii) all retirees and (iii) all vested terminated participants in the
Axion 401K Plan with account balances under the Axion 401K Plan. Assets relating
to the accounts of Continuing Employees will be retained by the Axion 401K Plan
trust which shall be renamed the New Axion 401K Plan Trust. Axion and AHC will
cooperate in good faith to expedite the trust-to-trust transfer and to assure
the ongoing operation and administration of the New Axion 401K Plan and the AHC
401K Plan.
Medical and Dental Benefits
Effective as of the Time of Distribution, the Transferred Employees will
cease to be covered under the Aetna Medical and Dental Plan (the "Axion Health
Plan"). Axion will continue to maintain the Axion Health Plan for the Continuing
Employees (and their eligible dependents). Following the Distribution, AHC will
maintain a medical and dental plan and a corresponding flexible benefit plan to
cover the Transferred Employees (and their eligible dependents) on the same
basis and subject to the same conditions that would have applied absent the
Distribution. Subject to certain indemnification provisions, Axion will be
responsible for providing COBRA coverage to any former employee, retiree or
COBRA beneficiary entitled to such coverage under any Axion welfare benefit plan
as of the Time of Distribution.
Other Welfare Benefits
Following the Distribution, each Transferred Employee (and his or her
dependents) will continue to participate in a life and accidental death and
dismemberment plan on the same terms that would have applied absent the
Distribution. No Transferred Employee will be subject to any waiting period with
respect to such
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coverage under such plan which would not have applied absent his or her transfer
of employment to AHC. As of the Time of Distribution, and subject to completion
of the Merger, each Continuing Employee will receive similar welfare benefits
under the plans of BMS which apply to similarly situated employees of BMS.
Disability Coverage
Following the Distribution, each Transferred Employee will continue to
participate in a long term disability plan on the same terms that would have
applied absent the Distribution. No Transferred Employee will be subject to any
waiting period or pre-existing condition exclusion with respect to such
disability coverage which would not have applied absent his or her transfer of
employment to AHC. In accordance with the foregoing, AHC will be responsible for
providing long-term disability benefits to each Transferred Employee who is or
becomes disabled before, on or after the Time of Distribution and each former
employee of Axion who becomes disabled before the Time of Distribution
regardless of whether such former employee would have been a Transferred
Employee if he or she had not become disabled. As of the date immediately
following the Time of Distribution, and subject to completion of the Merger,
each Continuing Employee will be eligible to participate in the long-term
disability coverage provided under the plans and policies of BMS subject to the
same coverage levels and other terms and conditions (including waiting periods
and pre-existing condition exclusions) as a newly hired employee of BMS.
Retained Plans
The plans maintained by Axion that will not be transferred to AHC (the
"Retained Plans") are the following: (a) the Axion 1989 Plan and the 1995 Plan,
each of which will terminate at the Effective Time, (b) the Axion Health Plan,
which will be retained by Axion and will provide health benefits for the
Continuing Axion Employees, and (c) the Axion Pharmaceuticals, Inc. (as amended
to be the OTNC) Flexible Employee Benefit Plan, which will continue to be
maintained by Axion for the benefit of the Continuing Axion Employees.
With respect to all options granted under the Axion 1989 Plan and the Axion
1995 Plan and currently outstanding, the Merger will constitute a "Corporate
Transaction" for purposes of both the Axion 1989 Plan and Axion 1995 Plan, with
the following consequences:
(a) any option granted under the Axion 1989 Plan not yet exercisable will
become exercisable in full upon consummation of the Merger and the
holder thereof will be entitled to exercise such option immediately
before the Effective Time with respect to any or all of the shares of
Axion common stock then subject to the option;
(b) the shares issuable upon exercise of an option granted under either
the Axion 1989 Plan or Axion 1995 Plan and shares already issued upon
exercise of an option granted under the Axion 1989 Plan which in each
case are unvested at the Effective Time will become fully vested and
Axion's repurchase rights with respect to such unvested shares will
automatically lapse upon consummation of the Merger;
(c) Axion will loan a sum of money to each holder of an option outstanding
under the Axion 1989 Plan or the Axion 1995 Plan equal to the exercise
price for all of the shares purchasable under each such option, the
proceeds of which such optionee may use to exercise his or her option.
Each such note shall be full recourse, shall be unsecured, shall bear
interest at the applicable Federal rate established by the IRS and
shall be due at the end of two years, subject to acceleration to the
extent the optionee sells any of the Axion shares purchased with the
note or the BMS shares received in exchange for such Axion shares; and
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(d) each option granted under the Axion 1989 Plan and each option granted
under the Axion 1995 Plan will be canceled upon consummation of the
Merger to the extent not exercised prior to the Merger.
The Axion 1989 Plan and the Axion 1995 Plan will terminate at the Effective
Time.
Severance Arrangements
Axion has adopted the Oncology Therapeutics Network Corporation Officers
Severance Plan ("Severance Plan") effective January 1, 1996 for the benefit of
David Levison and four other individuals who have entered into employment
contracts with OTNC to continue in employment after the Merger. The Severance
Plan provides for the payment of certain severance benefits in the event of the
eligible employee's involuntary termination, other than a termination for cause,
within the twelve (12) month period following certain changes in control. The
Merger constitutes a change in control for purposes of the Severance Plan and
accordingly will trigger severance benefits for an eligible employee if his
employment is involuntarily terminated by BMS within twelve months of the
Merger. An eligible employee's termination of employment by Axion will not
trigger severance benefits under the Severance Plan if the individual is
employed in a comparable position by BMS or a subsidiary. The Severance Plan
provides for a lump sum cash payment equal to 12 months of the eligible
employee's base salary plus the employee's full target bonus for the fiscal year
in which the employment termination occurs. Pursuant to the OTNC Employment
Contracts, David Levison and the four other individuals have waived their rights
to receive benefits under the Severance Plan. The OTNC Employment Contracts
provide certain severance payments. See "--OTNC Employment Contracts".
Neither Axion nor the Company has in place any severance arrangements for
any of the other Named Officers.
RELATIONSHIP WITH BMS
Following the Merger, AHC will continue to have certain relationships with
BMS and its subsidiaries.
Indemnification Agreement; Escrow Agreement; Tax Matters Agreement
AHC and certain of its subsidiaries and BMS and certain of its subsidiaries
will be parties to the Indemnification Agreement, the Tax Matters Agreement and
the Escrow Agreement. See "The Distribution--Terms of the Idemnification
Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms of the Escrow
Agreement".
Noncompetition Agreements
In the Noncompetition Agreements, each of AHC, OnCare, Michael D. Goldberg
and Garrett J. Roper will agree that, for a period of two years following the
Closing Date, neither they nor their respective subsidiaries and affiliates, as
the case may be, will have any relationship with any entity which directly or
indirectly engages in the distribution of oncology drugs, supplies or biologics
to certain customers or furnishes automated drug dispensing and inventory
tracking systems to office-based oncology practices anywhere within the United
States. In addition, AHC will agree that neither AHC nor any of its subsidiaries
will solicit for employment or hire, whether as an employee, consultant or
otherwise, David A. Levison, President of OTNC, during the term of his
employment agreement with Axion.
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AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement; OnCare
Medstation Agreement.
Pursuant to the AHC Supply Agreement and OnCare Supply Agreement each of
AHC and OnCare, respectively, will agree to purchase from OTN all the products
and supplies offered by OTN required by all oncology treatment facilities that
are either owned by AHC or OnCare, as the case may be, or any of their
respective subsidiaries or controlled affiliates, managed by AHC or OnCare, as
the case may be, or any of their respective subsidiaries or controlled
affiliates or which AHC or OnCare, as the case may be, or any of their
respective subsidiaries or controlled affiliates has the authority at the
discretion of the oncology treatment facility to purchase products or supplies.
In general OTN will agree to provide each of AHC and OnCare, respectively, the
lowest prices at which OTN sells such products or supplies to other oncology
physician management companies with the authority to make purchasing decisions
on behalf of physician office practices which have agreed to make purchase or
other commercial commitments equivalent to those agreed to by AHC or OnCare, as
the case may be, provided that in the event AHC or OnCare, as the case may be,
receives an offer pricing products or supplies at a price of at least 10% less
than the lowest price offered by OTN and OTN chooses not to match such lower
offer, AHC or OnCare, as the case may be, may purchase such products or supplies
for a term to end upon the later of 30 days after the receipt of such lower
offer and the term of such lower offer. The existing supply agreements between
OTN and each of AHC and OnCare will terminate on the Closing Date. Similar
arrangements have been made between each of AHC and OnCare and OTN Medstation
pursuant to the AHC Medstation Agreement and the OnCare Medstation Agreement,
respectively, regarding the lease from OTN Medstation of oncology drug
dispensing machines.
License Agreement
In the License Agreement, AHC will agree to provide to Axion a royalty-free
exclusive, fully paid up right and license to use the "OPUS" name and other
scheduled intellectual property in connection with the OPUS Station Business for
a period of one year. The License Agreement also provides that Axion may use
certain supplies specified in the License Agreement for a period of not more
than two month; provided that Axion agrees to use commercially reasonable
efforts to terminate its use of the Axion Intellectual Property as soon as
practicable following the Effective Time.
Transitional Services Agreement
In the Transitional Services Agreement, AHC will agree to provide to Axion
certain services, including certain financial and information systems services,
and Axion will agree to provide to AHC certain services, including certain
information systems services and clinical trials logistic support. The services
provided under the Transitional Services Agreement will be performed for a
period of three months after the date thereof with renewals of one month upon
the mutual consent of the parties with such renewals not to exceed an aggregate
of three months in addition to the original term.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material federal income tax
consequences of the Distribution and the Merger to holders of Axion Common Stock
who are citizens or residents of the United States. This discussion does not
consider all the tax consequences that may be relevant to Axion stockholders
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, tax exempt organizations or, except as specifically
provided below, foreign persons) or to Axion stockholders who acquired their
shares of Axion Common Stock pursuant to the exercise of employee stock options
or otherwise in compensatory transactions. In addition, this discussion does not
address any state, local or foreign tax considerations nor does it address any
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federal estate, gift, employment, excise or other non-income tax consideration.
The following discussion is based upon provisions of the Code, regulations,
administrative rulings and judicial decisions presently in effect, all of which
are subject to change (possibly with retroactive effect) or to different
interpretations. ALL AXION STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION AND
MERGER, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX
LAWS.
The Distribution
In the opinion of Ernst & Young, Axion's public accountants, based upon
certain representations of BMS, BMS Sub, Axion, AHC and certain Axion
stockholders, the Distribution should qualify as a tax-free spin-off under
Section 355 of the Code. In such event, the following consequences would obtain:
1. An Axion stockholder should not recognize any income, gain or loss as a
result of the Distribution.
2. An Axion stockholder should apportion the tax basis of his or her Axion
Common Stock between such Axion Common Stock and AHC Preferred Stock received in
the distribution in proportion to the relative fair market values of such Axion
Common Stock and AHC Preferred Stock immediately following the Distribution.
3. An Axion stockholder's holding period for the AHC Preferred Stock
received in the Distribution should include the period during which such
stockholder held Axion Common Stock with respect to which the Distribution was
made, provided that such Axion Common Stock is held as a capital asset by such
stockholder as of the date of the Distribution.
4. Under current law, no gain or loss should be recognized by Axion as a
result of the Distribution. It should be noted, however, that legislation (the
"Proposed Legislation") has been proposed that would cause the Distribution to
constitute a taxable event to Axion whereby Axion would recognize gain in an
amount equal to the excess of the value of the AHC Preferred Stock distributed
over Axion's tax basis in such stock. While the Proposed Legislation has not yet
been enacted into law, as currently drafted such legislation would, if enacted,
apply retroactively to the Distribution. Based on an appraisal by Ernst & Young
of the value of the businesses to be distributed by Axion in the Distribution,
Axion does not expect that it would incur a material amount of tax liability
even if the Proposed Legislation were adopted with an effective date that
applied to the Distribution. There can be no assurance, however, that the IRS
will agree with such valuations, and, accordingly, that adoption of the Proposed
Legislation would not cause Axion to incur a material amount of tax liability.
Pursuant to the Tax Matters Agreement, the AHC Indemnifying Parties have agreed
to indemnify the BMS Indemnified Parties against such tax liability. Regardless
of whether the Proposed Legislation is adopted, Axion and/or its subsidiaries
may also be required to recognize gain as a result of the transfer of various
assets and liabilities among such entities in anticipation of the Distribution.
No ruling from the IRS has been or will be sought with respect to any of
the tax matters relating to the Distribution. The opinion of Ernst & Young
described above will not be binding on the IRS. In addition, Axion stockholders
should be aware that such opinion is based on Ernst & Young's interpretation as
to how various requirements of Code Section 355 should apply to the particular
facts presented by the Distribution. With respect to some of these
interpretations, no direct legal precedents exist. Accordingly, there can be no
assurance that the IRS will agree with the conclusions set forth in the Ernst &
Young opinion. Moreover, no published rulings or cases squarely address the
qualifications of a transaction identical to the Distribution under Section 355
of the Code.
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A successful IRS challenge to the qualification of the Distribution as a
tax-free spinoff qualifying under Section 355 of the Code (as a result of the
inaccuracy of any of the representations of BMS, BMS Sub, Axion, AHC or certain
Former Axion Stockholders, or otherwise) would result in the following
consequences:
1. Axion would recognize gain in an amount equal to the excess of the value
of the AHC Preferred Stock distributed over Axion's tax basis in such stock. As
noted above, Axion does not expect that it would incur a material amount of tax
liability. As discussed above, Axion and/or its subsidiaries may also be
required to recognize gain as a result of the transfer of various assets and
liabilities among such entities in anticipation of the Distribution, regardless
of whether the Distribution qualifies as a tax-free spinoff.
2. The receipt of AHC Preferred Stock would constitute a taxable
distribution to Axion stockholders so that the fair market value of the AHC
Preferred Stock received by an Axion stockholder would be treated (i) first, as
a dividend to the extent of such Axion stockholder's share of Axion's current
and accumulated earnings and profits, (ii) next, as a tax-free return of capital
to the extent of such stockholder's tax basis in the Axion Common Stock with
respect to which the AHC Preferred Stock is distributed (as determined, for
Axion stockholders who hold two or more blocks of stock with different bases, on
a block-by-block approach rather than by aggregating the bases of all blocks of
stock held by each Axion stockholder) and (iii) finally, as gain from the sale
of Axion Common Stock.
3. An Axion stockholder's aggregate basis in the shares of AHC Preferred
Stock received in the exchange would equal the fair market value of such shares,
and the stockholder's holding period for such AHC Preferred Stock would not
include the period during which the shares of Axion Stock were held.
Under the Tax Matters Agreement, the Axion Indemnifying Parties have agreed
to indemnify the BMS Indemnified Parties against any tax liability arising from
the failure of the Distribution to qualify as a tax-free spinoff under Section
355 of the Code. See "The Distribution--Terms of the Tax Matters Agreement".
The Merger
In the opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, counsel for Axion, and Ernst & Young LLP, accountants for Axion, based on
certain representations of BMS, BMS Sub, Axion, AHC and certain Former Axion
Stockholders, the Merger will qualify as a reorganization under Section 368(a)
of the Code. Provided that the Merger does so qualify, the following results
should obtain:
1. No gain or loss will be recognized by stockholders of Axion who exchange
all of their shares of Axion Common Stock solely for shares of BMS Common Stock
in the Merger.
2. No gain or loss will be recognized by Axion as a result of the Merger.
3. The aggregate tax basis of the BMS Common Stock received in the Merger
(including any BMS Common Stock held in escrow) by each Axion stockholder will
be the same as the aggregate tax basis of the shares of Axion Common Stock
surrendered in exchange therefor.
4. The holding period for each share of BMS Common Stock received in the
Merger will include the period during which the shares of Axion Common Stock
surrendered in exchange therefor were held, provided that such shares of Axion
Common Stock were held as capital assets at the Effective Time.
5. A stockholder who exercises dissenter's rights with respect to a share
of Axion Common Stock and who receives payment for such stock in cash will
generally recognize capital gain or loss (if such share were held as a capital
asset at the Effective Time) measured by the difference between the Axion
stockholder's basis in such
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share and the amount of cash received, provided that such payment is neither
essentially equivalent to a dividend nor has the effect of a distribution of a
dividend (a "Dividend Equivalent Transaction"). (See Sections 302 and 356(A)(2)
of the Code.) A sale of Axion Common Stock pursuant to an exercise of
dissenter's rights will generally not be a Dividend Equivalent Transaction if,
as a result of such exercise, the Axion Stockholder exercising dissenter's
rights owns no shares of BMS Common Stock (either actually or constructively
within the meaning of Section 318 of the Code.) If, however, an Axion
Stockholder's sale for cash of Axion Common Stock pursuant to an exercise of
dissenter's rights is a Dividend Equivalent Transaction, then such Axion
stockholder will generally recognize ordinary dividend income for federal income
tax purposes in an amount up to the entire amount of cash so received.
It is a condition to the obligation of BMS to effect the Merger that no
Dissenting Shares be outstanding at the Effective Time.
No ruling from the IRS has been or will be sought with respect to any of
the tax matters relating to the Merger. The opinions described above will not be
binding on the IRS and there can accordingly be no assurance that the IRS will
agree with the conclusions set forth therein.
A successful IRS challenge to the status of the Merger as a reorganization
under Section 368(a) of the Code (as a result of the inaccuracy of any of the
representations of BMS, BMS Sub, Axion, AHC or certain Former Axion
Stockholders, or otherwise) would result in an Axion stockholder recognizing
gain or loss with respect to each share of Axion Common Stock surrendered equal
to the difference between the fair market value, as of the Effective Time, of
the BMS Common Stock received in exchange therefor and the stockholder's tax
basis in such Axion stock. In such event, an Axion stockholder's aggregate basis
in the shares of BMS Common Stock received in the exchange would equal the fair
market value of such shares, and the stockholder's holding period for such BMS
Common Stock would not include the period during which the shares of Axion stock
were held. In addition, a successful IRS assertion that the Merger does not
qualify as such a reorganization would also cause the Distribution to fail to
qualify as a tax-free spinoff under Section 355 of the Code which, as noted
above, could result in significant tax liability to the Axion Stockholders as
well as indemnification obligations of AHC and the Former Axion Stockholders.
See "The Distribution--Terms of the Tax Matters Agreement".
For tax purposes, AHC will be deemed to own the Escrowed Cash and each of
the Former Axion Stockholders will be deemed to own its pro rata share of the
Escrowed Stock. Any taxable income earned or amounts realized in respect of the
cash or stock held in the Escrow Account shall be for the account of AHC or the
Former Stockholders of Axion, respectively, and such parties have agreed to
report such amounts in such manner. If any Escrowed Stock is returned to Axion
pursuant to the terms of the Indemnification Agreement or the Tax Matters
Agreement, the basis of such shares will be allocable to the remaining shares
held by the applicable Former Axion Shareholder on a pro rata basis, or if no
such shares are then held by such Former Axion Shareholder, such return could
result in the recognition of gain by such Former Axion Stockholder.
The foregoing summary sets forth the material Federal income tax
consequences of the Distribution and the Merger and is included herein for
general information only. Such opinions are based in part on representations
provided by Axion and BMS. The summary does not address the Federal income tax
consequences to all categories of Axion stockholders, including those who
acquired shares of Axion Common Stock pursuant to the exercise of stock options
or otherwise in compensatory transactions. EACH AXION STOCKHOLDER IS URGED TO
CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER
OF THE DISTRIBUTION AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
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DESCRIPTION OF CAPITAL STOCK OF BMS
General
The following description of the material terms of the authorized capital
stock of BMS does not purport to be complete and is qualified in its entirety by
reference to the Restated Certificate of Incorporation of BMS (the "BMS
Certificate of Incorporation"), the By-laws of BMS (the "BMS By-laws") and the
Rights Agreement. See "Available Information."
The authorized capital stock of BMS presently consists of 1,500,000,000
shares of BMS Common Stock and 10,000,000 shares of preferred stock, issuable in
series. As of July 31, 1996, 501,173,088 shares of BMS Common Stock and 16,291
shares of convertible preferred stock, par value $1.00 per share, of BMS (the
"BMS Convertible Preferred") were issued and outstanding. The BMS Board is
authorized to approve the issuance of one or more additional series of preferred
stock of BMS without further authorization of BMS's stockholders (except as may
be required under applicable stock exchange requirements), and to fix the number
of shares, the designations, the powers, preferences and relative,
participating, optional and other special rights of any such additional series
and the qualifications, limitations and restrictions thereof. Thus, any
additional series may, if so determined by the BMS Board, have full voting
rights with the BMS Common Stock or limited voting rights, be convertible into
BMS Common Stock or another security of BMS, and have such other powers,
preferences and relative, participating, optional and other special rights, and
such qualifications, limitations and restrictions thereof, as the BMS Board
shall determine.
Common Stock
The holders of BMS Common stock are entitled to receive dividends when and
as declared by the BMS Board out of funds legally available therefor, subject to
the terms of any preferred stock of BMS at the time outstanding.
The holders of BMS Common Stock are entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors. The
holders of BMS Common Stock do not have any cumulative voting, conversion,
redemption or preemptive rights. In the event of dissolution, liquidation or
winding up of BMS, holders of BMS Common Stock will be entitled to share
ratably, together with any participating preferred stock of BMS, in any assets
remaining after the satisfaction in full of the prior rights of creditors,
including holders of indebtedness of BMS, and the aggregate liquidation
preference of any preferred stock of BMS then outstanding.
The outstanding shares of BMS Common Stock are listed on the NYSE and the
PSE. Chase Mellon Shareholder Services, 85 Challenger Road, Overpeck Centre,
Ridgefield Park, New Jersey 07660 is the transfer agent and registrar for the
BMS Common Stock.
BMS Convertible Preferred
Dividend Rights
Holders of BMS Convertible Preferred are entitled to receive, when and as
declared by the BMS Board out of funds legally available for payment, annual
dividends in an amount per share equal to $2.00. Dividends on BMS Convertible
Preferred are payable on the first day of March, June, September and December of
each year. Dividends on the BMS Convertible Preferred are cumulative and accrue
on a day-to-day basis.
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For so long as the BMS Convertible Preferred is outstanding, BMS may not
declare or pay any dividend on BMS Common Stock or redeem or purchase any other
preferred stock of BMS or purchase BMS Common Stock, unless full cumulative
dividends on the BMS Convertible Preferred have been paid, or declared and funds
set apart for payment thereof.
Conversion Provisions
At the election of the holder thereof, each share of BMS Convertible
Preferred is convertible into shares of BMS Common Stock, subject to adjustment
as set forth below. As of the date of this Proxy Statement/Prospectus, each
share of BMS Convertible Preferred is convertible into 4.24 shares of BMS Common
Stock. With respect to shares of BMS Convertible Preferred called for
redemption, conversion rights will expire at the close of business on the date
fixed for redemption, unless BMS defaults in the payment of the redemption
price.
No fractional shares will be issued upon conversion, and, in lieu thereof,
an adjustment in cash will be made based upon the closing price of BMS Common
Stock on the NYSE on the day of conversion.
The conversion rate will be subject to adjustment in certain events to
preserve the relative rights of holders of BMS Convertible Preferred, including
certain subdivisions and combinations of BMS Common Stock, certain
reclassifications, and certain consolidations and mergers of BMS. Adjustments in
the conversion rate will be deferred until cumulative adjustments shall have
resulted in a change of the conversion rate by at least one one-hundredth of one
share of BMS Common Stock. No payment or allowance will be made upon conversion
in respect of any accrued and unpaid dividends.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of BMS, whether
voluntary or involuntary, the holders of BMS Convertible Preferred then
outstanding are entitled to receive $50.00 per share plus all accrued and unpaid
dividends.
Redemption
BMS Convertible Preferred is redeemable, at the option of BMS, in whole or
in part, at the price of $50.00 per share together with accrued and unpaid
dividends at the date of redemption. If BMS shall redeem less than all of the
outstanding shares of BMS Convertible Preferred, the BMS Board will determine
the shares to be redeemed by lot.
Voting Rights
Each share of BMS Convertible Preferred entitles the holder thereof to one
vote per share, and except as otherwise provided by the BMS Certificate of
Incorporation or as required by law, the BMS Convertible Preferred and the BMS
Common Stock vote as one class except that when holders of shares of preferred
stock of BMS voting as a class are entitled to elect two directors as provided
in the BMS Certificate of Incorporation, such holders are not entitled to
participate with the BMS Common Stock in the election of any other directors.
Without the affirmative vote of the holders of at least two-thirds of the
outstanding shares of BMS Convertible Preferred, BMS may not amend, alter or
repeal any provision of the BMS Certificate of Incorporation or BMS By-laws so
as to materially affect any of the powers, preferences and rights of BMS
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Convertible Preferred. The holders of BMS Convertible Preferred have no other
voting rights except as required by law.
BMS Rights
Each share of BMS Common Stock carries with it an associated BMS Right that
entitles holders of BMS Common Stock to buy one one-thousandth of a share of a
new series of participating preferred stock of BMS at an exercise price of $200
under certain circumstances. The BMS Rights separate from the associated shares
of BMS Common Stock and become exercisable only after a person or group acquires
beneficial ownership of 20% or more of BMS Common Stock or commences a tender or
exchange offer upon consummation of which such person or group would
beneficially own 30% or more of BMS Common Stock.
If any person (i) becomes the beneficial owner of 25% or more of BMS Common
Stock, other than pursuant to certain tender or exchange offers described in the
Rights Agreement, (ii) who is a 20% or more stockholder engages in certain
self-dealing transactions described in the Rights Agreement or (iii) engages in
a merger transaction with BMS in which BMS is the surviving corporation and
shares of BMS Common Stock are not changed or converted, then each BMS Right not
owned by such person or related parties will entitle its holder to purchase, at
the BMS Right's then-current exercise price, shares of BMS Common Stock (or, in
certain circumstances as determined by the BMS Board, cash, property or other
securities of BMS) having a value of twice the BMS Right's exercise price. In
addition, if BMS is involved in a merger or other business combination
transaction with another person in which shares of BMS Common Stock are changed
or converted, or sells 50% or more of its assets or earning power to another
person, each BMS Right will entitle its holder to purchase, at the BMS Right's
then-current exercise price, common shares of such other person having a value
of twice the BMS Right's exercise price.
BMS is generally entitled to redeem the BMS Rights at a price of $.01 per
BMS Right at any time until the 15th day following public announcement that a
20% position has been acquired.
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
BMS COMMON STOCK AND HOLDERS OF AXION COMMON STOCK
The rights of the holders of BMS Common Stock are governed by the BMS
Certificate of Incorporation and the BMS By-laws, while the rights of the
holders of Axion Common Stock are governed by the Axion Certificate of
Incorporation and the Axion By-laws. Both BMS and Axion are governed by the
DGCL. Upon consummation of the Merger, the stockholders of Axion will become
stockholders of BMS. The BMS Certificate of Incorporation and the BMS By-laws
will remain in effect after the Merger. Below is a summary of certain
differences between the rights of holders of BMS Common Stock, on the one hand,
and the holders of Axion Common Stock on the other, resulting from differences
in governing law and the respective BMS and Axion certificates of incorporation
and by-laws.
The following summary does not purport to be a complete statement of the
rights of BMS stockholders under the BMS Certificate of Incorporation and the
BMS By-laws compared with the rights of holders of Axion Common Stock under the
Axion Certificate of Incorporation and the Axion By-laws. This summary is
qualified in its entirety by reference to the respective BMS and Axion
certificates of incorporation and by-laws.
Certain Business Combinations
The BMS Certificate of Incorporation requires the affirmative vote of the
holders of at least 75% of the outstanding shares of stock of BMS entitled to
vote generally in the election of directors, voting together as a
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single class, to approve any merger or other Business Combination (as defined
therein, which term includes a merger, consolidation, sale of all or
substantially all the assets of BMS, the adoption of a plan of liquidation and
similar extraordinary corporate transactions) between, or otherwise involving
BMS and (i) any Interested Stockholder (as defined therein) or (ii) any other
person which is, or after such Business Combination would be, an Affiliate or
Associate (as defined therein) unless (i) the transaction has been approved by a
majority of the Continuing Directors (as defined therein) or (ii) certain
minimum price, form of consideration, and procedural requirements are satisfied.
Axion's Certificate of Incorporation requires, so long as no fewer than an
aggregate of 500,000 shares of Axion Series A Preferred Stock, par value $.001
per share (the "Axion Series A"), Axion Series B Preferred Stock, par value
$.001 per share (the "Axion Series B"), Axion Series C Preferred Stock, par
value $.001 per share (the "Axion Series C"), Axion Series D Preferred Stock,
par value $.001 per share (the "Axion Series D"), Axion Series E Preferred
Stock, par value $.001 per share (the "Axion Series E"), or Axion Series F
Preferred Stock, par value $.001 per share (the "Axion Series F") are
outstanding, that any transaction that would result in a reorganization of
Axion, or the merger or consolidation of Axion with or into another corporation,
or the effectuation by Axion of a transaction or series of transactions in which
more than 50% of the voting power of Axion is disposed of (a "Change in
Control"), or the sale of all or substantially all of the assets of Axion must
be approved by the holders of at least 50% of the then outstanding shares of
Axion Preferred Stock (excluding from such vote the shares of any series of
Axion Preferred Stock of which there are fewer than 100,000 shares outstanding),
voting together as a single class.
Removal of Directors
The BMS Certificate of Incorporation and the BMS By-laws generally provide
that, subject to the rights of the holders of BMS Preferred Stock, directors may
be removed from office with or without cause only by the affirmative vote of the
holders of at least 75% of the outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class.
Neither the BMS Certificate of Incorporation nor the BMS By-laws define the term
"cause".
The Axion By-laws provide that, at a special meeting of stockholders called
for such purpose, the Axion Board or any individual director may be removed from
office, with or without cause, and a new director or directors elected by a vote
of stockholders holding a majority of the outstanding shares entitled to vote at
an election of directors.
Vacancies on the Board of Directors
The BMS Certificate of Incorporation and the BMS By-laws provide that,
subject to the rights of the holders of BMS Preferred Stock, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the BMS Board resulting from death, resignation, retirement,
disqualification, removal or other cause will be filled only by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum. The BMS Certificate of Incorporation provides that any directors
so elected will serve for the remainder of the full term of the class in which
the new directorship was created or the vacancy occurred.
The Axion By-laws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected shall hold office for
the unexpired portion of the term of the director whose place shall be vacant
and until his successor shall have been duly elected and qualified. Vacancies
are deemed to exist in the case of the death, removal or resignation of any
director, or if the
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stockholders fail at any meeting of stockholders of which directors are to be
elected to elect the number of directors constituting the entire Axion Board.
Under the Axion Certificate of Incorporation, any vacancy occurring because
of the death, resignation, or removal of a director elected by the holders of
Axion Series A, the holders of Axion Series B or the holders of Axion Series C
will be filled by the vote or written consent of the holders of a majority of
the shares of that series or, in the absence of such action by such holders, by
action of the remaining directors then in office. Any vacancy occurring because
of the death, resignation or removal of a director elected by the holders of
outstanding Axion Common Stock will be filled by the vote or written consent of
the holders of a majority of the outstanding shares of Axion Common Stock or, in
the absence of such action by such holders, by action of the remaining directors
then in office.
Amendments to the Certificate of Incorporation
Under the BMS Certificate of Incorporation, the affirmative vote of the
holders of at least 75% of the outstanding voting stock is required to alter,
amend or adopt the provisions contained therein relating to the classified
board, filling vacancies on the BMS Board, prohibiting any action required or
permitted to be taken by the stockholders of BMS by written consent, prohibiting
the call of special meetings by stockholders, approval of Business Combinations
and certain amendments to the BMS By-laws.
The Axion Certificate of Incorporation requires, so long as no fewer than
an aggregate of 500,000 shares of Axion Series A, Axion Series B, Axion Series
C, Axion Series D, Axion Series E or Axion Series F are outstanding, that the
addition, amendment or repeal of any provision of the Axion Certificate of
Incorporation that would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of the
Axion Preferred Stock must be approved by the holders of at least 50% of the
then outstanding shares of Axion Preferred Stock (excluding from such vote the
shares of any series of Axion Preferred Stock of which there are fewer than
100,000 shares outstanding), voting together as a single class. Notwithstanding
the previous sentence, the Axion Certificate of Incorporation provides that
Axion reserves the right to amend, alter, change or repeal any provision
contained in the Axion Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
therein are granted subject to that reservation.
Amendments to Bylaws
Under the BMS Certificate of Incorporation and the BMS By-laws, the BMS
By-laws may be altered, amended or repealed by the affirmative vote of the
holders of at least a majority of the outstanding voting stock or by a vote of
the majority of the whole BMS Board, except for amendments which affect certain
provisions relating to the classification and composition of the BMS Board,
which require the affirmative vote of holders of at least 75% of the outstanding
voting stock.
The Axion By-laws may be repealed, altered or amended or new By-laws
adopted by the Axion stockholders. Under the Axion By-laws, the affirmative vote
of the holders of at least 66-2/3% of the voting power of all the then
outstanding shares of the capital stock of Axion entitled to vote generally in
the election of directors, voting together as a single class, is required to
adopt, amend or repeal any provisions of the Axion Bylaws. The Axion Certificate
of Incorporation requires, so long as no fewer than an aggregate of 500,000
shares of Axion Series A, Axion Series B, Axion Series C, Axion Series D, Axion
Series E or Axion Series F are outstanding, the approval of the holders of at
least 50% of the then outstanding shares of Axion Preferred Stock (excluding
from such vote the shares of any series of Axion Preferred Stock of which there
are fewer than 100,000 shares outstanding), voting together as a single class,
to amend, repeal or add any provision to the Axion By-laws, if such action would
adversely alter or change the preferences, rights, privileges or powers of, or
the
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restrictions provided for the benefit of, the Axion Preferred Stock.
Notwithstanding the preceding, the Axion Board may from time to time make,
amend, supplement or repeal the Axion By-laws; provided, however, that the Axion
stockholders may change or repeal any Bylaw adopted by the Axion Board; and
provided, further, that no amendment or supplement to the Axion By-laws adopted
by the Axion Board will vary or conflict with any amendment or supplement to the
Axion Certificate of Incorporation adopted by Axion stockholders.
Special Meetings of Stockholders; Action by Written Consent
The BMS Certificate of Incorporation and the BMS By-laws require that,
subject to the rights of the holders of any preferred stock of BMS, any action
required or permitted to be taken by the stockholders of BMS be taken only at an
annual meeting or at a special meeting of stockholders called by a majority of
the entire BMS Board or by the Chairman of the BMS Board, and prohibit
stockholder action by written consent in lieu of a meeting. Stockholders of BMS
are not permitted to call a special meeting of stockholders or to require that
the BMS Board call such a special meeting.
The Axion By-laws provide that special meetings of Axion stockholders may
be called at any time, for any purpose or purposes, only by the President of
Axion or the Axion Board. The Axion By-laws further provide that any action
required by statute to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice and
without a vote, if written consent setting forth the action so taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize such action at a meeting at which all
shares entitled to vote thereon were present and voted.
Indemnification of Officers and Directors
The BMS By-laws provide that each BMS officer and director is indemnified
to the full extent permitted by law, against: (i) expenses incurred or paid by
the director or officer in connection with any claim made against such director
or officer, or any actual or threatened action, suit or proceeding in which such
director or officer may be involved by reason of being or having been a director
or officer of BMS, or of serving or having served another corporation or entity
at the request of BMS, and (ii) the amount or amounts paid (subject to certain
limitations) by the director or officer in settlement of any such claim or
action. Subject to the provisions of the General Corporation Law of the State of
Delaware, no director of BMS will be personally liable to BMS or BMS
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent that such liability arises (i) from a breach of the
director's duty of loyalty, (ii) as a result of acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derived an improper personal benefit.
The rights of indemnification provided by the BMS By-laws are severable,
are not exclusive of other rights to which any director or officer now or
hereafter may be entitled, will continue as to a person who has ceased to be an
indemnified person and will inure to the benefit of the heirs, executors,
administrators and other legal representatives of such a person. The provisions
of the indemnification provision under the BMS By-laws is deemed to be a
contract between BMS and each director or officer who serves in such capacity at
any time while such provision is in effect.
The Axion By-laws require Axion to indemnify its directors to the fullest
extent permitted by the DGCL and give Axion the power to indemnify its officers,
employees and other agents as set forth in the DGCL. The Axion Certificate of
Incorporation provides that a director of Axion will not be personally liable to
Axion or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to Axion or its stockholders, (ii) for acts or omissions not in good
faith or
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which involve intentional misconduct or a knowing violation or law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived any improper personal benefit. Any repeal or modification of the
preceding sentence by the stockholders of Axion will not adversely affect any
rights or protection of a director of Axion existing at the time of such repeal
or modification.
No Cumulative Voting
Neither the BMS Certificate of Incorporation nor the Axion Certificate of
Incorporation provides for cumulative voting.
Size and Classification of the Board of Directors
The BMS Certificate of Incorporation divides the BMS Board into three
classes, each having staggered three year terms. The number of directors on the
BMS Board may be determined by a majority vote of the entire BMS Board. The BMS
Board is currently comprised of ten directors.
The Axion Board currently consists of six directors and is not classified.
The number of authorized directors may be modified from time to time by
amendment of the Axion By-laws.
EXPERTS
The consolidated financial statements of Axion as of December 31, 1995 and
1994, and for each of the three years in the period ended December 31, 1995,
included in this Proxy Statement/Prospectus and elsewhere in the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated financial statements and related financial schedule of BMS
incorporated in this Proxy Statement/Prospectus by reference to the BMS Form
10-K for the year ended December 31, 1995, have been so incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
VALIDITY OF BMS SHARES
The validity of the BMS Common Stock to be issued pursuant to the terms of
the Merger Agreement will be passed upon for BMS by Cravath, Swaine & Moore.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AXION
The following table sets forth certain information regarding beneficial
ownership of Axion Common Stock as of July 31, 1996 (i) by each person who is
known by Axion to beneficially own more than five percent of Axion Common Stock,
(ii) by each of Axion's directors and executive officers, and (iii) by all
current directors and executive officers as a group.
Shares Percent
Beneficially Beneficially
Name of Beneficial Owner Owned(1)(2) Owned
------------------------ ----------- -----
Sevin Rosen Fund II L.P.(3) ........................ 3,060,067 36.66%
c/o Sevin Rosen Funds
Two Galleria Towers, Suite 1670
Dallas, TX75240
Galen Partners (4) ................................. 1,079,755 12.88
666 Third Avenue
Suite 1400
New York, NY 10017
Funds affiliated with Kleiner Perkins Caufield
& Byers (5) .................................... 1,005,000 12.04
2750 Sand Hill Rd ..............................
Menlo Park, CA 94025
Michael D. Goldberg (6) ............................ 799,000 9.18
Garrett J. Roper (7) ............................... 180,000 2.11
David L. Levison (8) ............................... 245,000 2.86
Eric T. Herfindal (9) .............................. 250,000 2.92
Donna M. Williams (10) ............................. 50,000 *
Robert V. Gunderson, Jr. (11) ...................... 5,000 *
George B. Borkow (12) .............................. 20,000 *
Stephen M. Dow (13) ................................ 3,090,067 36.93
Steven M. Gluckstern (14) .......................... 180,000 2.15
Joseph S. Lacob (15) ............................... 30,000 *
William R. Miller (16) ............................. 40,000 *
L. John Wilkerson (4) .............................. 1,079,755 12.88
All current directors and executive officers
as a group (12 persons) (17) ................... 5,968,822 62.93%
--------- -----
- ----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table
have sole voting and investment power with respect to all shares of
Axion Common Stock.
(2) The number of shares of Axion Common Stock deemed beneficially owned
includes shares issuable pursuant to stock options exercisable
(assuming the acceleration of the exercisability of such options) and
further includes options exercisable (assuming the exercisability of
such options) within 60 days after July 31, 1996.
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(3) Excludes 19,933 shares held by a general partner of SRB Associates II,
a Texas general partnership ("SRB Associates"). SRB Associates is the
general partner of Sevin Rosen Fund II L.P., a Texas limited
partnership ("Sevin Rosen II").
(4) Includes 750,900 shares of Axion Common Stock held by Galen Partners
II, L.P., a Delaware limited partnership ("Galen II"), 287,301 shares
of Axion Common Stock held by Galen Partners International II, L.P., a
Delaware limited partnership ("Galen International II"), 5,000 shares
of Axion Common Stock held by Rebound Two (Delaware), LLC, a Delaware
limited liability company, and 4,054 shares held by Galen Employee
Fund, L.P., a Delaware limited partnership. Also includes an option
exercisable into 30,000 shares under the Axion 1989 Plan held by Galen
Associates, a Delaware limited partnership, and an option exercisable
into 2,500 shares under the Axion 1989 Plan held by Longbow Partners,
a New York general partnership (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock under the Axion 1989 Plan and
2,500 shares of Axion Common Stock under the Axion 1995 Plan (assuming
the exercisability of such options within 60 days after July 31,
1996). Dr. Wilkerson, a director of Axion, is a general and limited
partner of GWW Partners L.P. ("GWW Partners"), the general partner of
Galen II and Galen International II. Dr. Wilkerson disclaims
beneficial ownership of the shares held by Galen II and Galen
International II except to the extent of his pecuniary interest
therein arising from his interest in GWW Partners. Dr. Wilkerson is
also a controlling stockholder of two corporations that are general
partners of Galen Associates. Dr. Wilkerson disclaims beneficial
ownership of the options held by Galen Associates except to the extent
of his pecuniary interest therein arising from his interests as a
stockholder in the corporations that are general partners of Galen
Associates. Dr. Wilkerson is a general partner of Longbow Partners and
disclaims beneficial ownership of the options held by Longbow Partners
except to the extent of his pecuniary interest therein.
(5) Includes 954,750 shares held by Kleiner Perkins Caufield & Byers V, a
California limited partnership ("KPCB V"), and 50,250 shares held by
KPCB Zaibatsu Fund I, a California limited partnership ("Zaibatsu").
(6) Includes options exercisable into 110,000 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 93,882 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996). Mr. Goldberg has advised Axion
that he does not intend to exercise the Goldberg $10.00 Options, and,
accordingly, the Goldberg $10.00 Options will be canceled prior to the
Effective Time.
(7) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 73,277 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996).
(8) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 76,638 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996). Includes 6,500 shares of Axion
Common Stock held in a trust for the benefit of his children (the
"Levison Trust"), of which Mr. Levison is a trustee. Mr. Levison
disclaims beneficial ownership of the shares held by the Levison
Trust.
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(9) Includes options exercisable into 75,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 63,507 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996).
(10) Includes options exercisable into 50,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
17,674 shares of Axion Common Stock under the Axion 1989 Plan
(assuming the exercisability of such options within 60 days after July
31, 1996).
(11) Robert V. Gunderson, Jr., is a member of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to Axion.
(12) Includes options exercisable into 20,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and 20,000 shares of Axion Common
Stock (assuming the exercisability of such options within 60 days
after July 31, 1996).
(13) Includes 3,060,067 shares held by Sevin Rosen Fund II L.P. and options
exercisable into 20,000 shares of Axion Common Stock under the Axion
1989 Plan (assuming the acceleration of the exercisability of such
options) and includes options exercisable into 20,000 shares of Axion
Common Stock under the Axion 1989 Plan (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Dow disclaims
beneficial ownership of such shares of stock held by Sevin Rosen Fund
II L.P. and disclaimed beneficial ownership of such shares except to
the extent of his pecuniary interest therein arising from his interest
in Sevin Rosen Fund II L.P.
(14) Includes 150,000 shares held by Centre Reinsurance Holdings Ltd.
("Centre") and options exercisable into 30,000 shares of Axion Common
Stock under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Gluckstern
disclaims beneficial ownership of such shares of stock held by Centre
and disclaimed beneficial ownership of such shares except to the
extent of his pecuniary interest therein arising from his interest in
Centre.
(15) Includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Lacob does not
have voting or investment power over the shares held by KPCB V and
Zaibatsu.
(16) Includes options exercisable into 10,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
10,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996).
(17) Includes options exercisable into 1,137,500 shares of Axion Common
Stock under the Axion 1989 Plan and 600,000 shares of Axion Common
Stock under the Axion 1995 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
499,804 shares of Axion Common Stock under the Axion 1989 Plan and
600,000 shares of Axion Common Stock under the Axion 1995 Plan
(assuming the exercisability of such options within 60 days after July
31, 1996).
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STOCKHOLDER PROPOSALS
If the Merger is consummated, stockholders of Axion will become stockholders
of BMS at the Effective Time. Stockholders of BMS will be able to submit to BMS
proposals for formal consideration at the 1997 annual meeting of BMS's
stockholders and inclusion in BMS's proxy statement and proxy for such meeting
in the manner and at the time set forth in the 1996 BMS Proxy Statement. BMS
stockholder proposals in respect of the 1997 annual meeting are required to be
received by BMS at its principal executive offices no later than November 18,
1996 for inclusion in BMS's proxy statement and proxy for such meeting.
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INDEX OF DEFINED TERMS
Term Page
81% AHC Subsidiaries ................................................... 71, 74
Acquired Business ...................................................... 8
Acquisition Proposal ................................................... 55
AHC .................................................................... 1
AHC 401K Plan .......................................................... 84
AHC Business ........................................................... 7
AHC Indemnified Parties ................................................ 13, 72
AHC Indemnifying Parites ............................................... 71, 75
AHC Material Adverse Effect ............................................ 58
AHC Medstation Agreement ............................................... 16
AHC Preferred Stock .................................................... 1
AHC Supply Agreement ................................................... 16
Alex. Brown ............................................................ 44
Amount Certificate ..................................................... 81
Antitrust Division ..................................................... 17
Assumed Liabilities .................................................... 70
Average Value of BMS Common Stock ...................................... 9, 47
Axion .................................................................. 1
Axion 1989 Plan ........................................................ 63
Axion 1995 Plan ........................................................ 63
Axion 401K Plan ........................................................ 84
Axion Board ............................................................ 1
Axion By-laws .......................................................... 47
Axion Certificate of Incorporation ..................................... 47
Axion Common Stock ..................................................... 1
Axion Expenses ......................................................... 48
Axion Health Plan ...................................................... 84
Axion Indemnified Parties .............................................. 76
Axion Indemnifying Parties ............................................. 75
Axion Material Adverse Effect .......................................... 51
Axion Options .......................................................... 1, 9
Axion Preferred Stock .................................................. 1
Axion Series A ......................................................... 93
Axion Series B ......................................................... 93
Axion Series C ......................................................... 93
Axion Series D ......................................................... 93
Axion Series E ......................................................... 93
Axion Series F ......................................................... 93
Best Closing Efforts ................................................... 68
BMOTN .................................................................. 7, 24
BMS .................................................................... 1
BMS Board .............................................................. 8
BMS By-laws ............................................................ 90
BMS Certificate of Incorporation ....................................... 90
BMS Common Stock ....................................................... 1
103
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Term Page
BMS Convertible Preferred .............................................. 90
BMS Form 10-K .......................................................... 3
BMS Indemnified Parties ................................................ 71, 75
BMS Indemnifying Parties ............................................... 73, 76
BMS Material Adverse Effect ............................................ 61
BMS Registration Statement ............................................. 3
BMS Rights ............................................................. 1
BMS Stock Escrow Fund .................................................. 72
BMS Sub. ............................................................... 1
Certificate of Merger .................................................. 10
Certificates ........................................................... 11
Change in Control ...................................................... 93
Closing ................................................................ 10
Closing Date ........................................................... 9
Code ................................................................... 15
Commission ............................................................. 3
Commissioner ........................................................... 57
Continuing Directors ................................................... 94
Continuing Employee .................................................... 82
Continuing Employee Schedule .......................................... 82
Contributions .......................................................... 68
Conversion Number ...................................................... 9, 47
Court Order ............................................................ 79
Delaware Court ......................................................... 65
DGCL ................................................................... 17
Diluted Share Assumption ............................................... 1, 9
Dissenting Shares ...................................................... 65
Distribution ........................................................... 1
Distribution Agreement ................................................. 1
Distribution Record Date ............................................... 12
Dividend Equivalent Transaction ........................................ 89
Documents .............................................................. 50
Effective Time ......................................................... 1
Employment Agreement ................................................... 82
Ernst & Young .......................................................... 15
Escrow Agent ........................................................... 13
Escrow Agreement ....................................................... 13
Escrowed Cash .......................................................... 2, 10
Escrowed Cash Termination Date ......................................... 79
Escrowed Property ...................................................... 76
Escrowed Shares ........................................................ 10
Escrowed Stock Pending Claims .......................................... 78
Escrowed Stock Termination Date ........................................ 78
Ex-Date ................................................................ 9
Excess Axion Expenses .................................................. 49
Exchange Act ........................................................... 3
Exchange Agent ......................................................... 11
Exculpated Parties ..................................................... 73
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Term Page
Filings ................................................................ 72
Final Pending Claims ................................................... 78
Former Axion Stockholder ............................................... 11
Form S-1 ............................................................... 51
Form S-4 ............................................................... 3
Fraud .................................................................. 73
FTC .................................................................... 17
GAAP ................................................................... 12
Galen II ............................................................... 99
Galen International II ................................................. 99
GECC ................................................................... 42
Goldberg $10.00 Options ................................................ 10
HSR Act ................................................................ 17
Indemnifiable Losses ................................................... 72
Indemnification Agreement .............................................. 12
Indemnification Item ................................................... 80
Indemnified Obligation ................................................. 77, 79
Information Statement .................................................. 8
IRS .................................................................... 15
JV Sales Taxes ......................................................... 76
KPCB V ................................................................. 99
Letter of Transmittal .................................................. 11
Levison Trust .......................................................... 99
Liabilities ............................................................ 69
License Agreement ...................................................... 16
Loan Agreement ......................................................... 53
Maximum Price .......................................................... 9
Merger ................................................................. 1
Merger Agreement ....................................................... 1
Merger Consideration ................................................... 9, 47
Merger Proposal ........................................................ 1
Minimum Price .......................................................... 1, 9
New Axion 401K Plan .................................................... 84
Noncompetition Agreements .............................................. 17
NYSE ................................................................... 3
NYSE Tape .............................................................. 9
OnCare ................................................................. 4
OnCare Medstation Agreement ............................................ 16
OnCare Preferred Stock ................................................. 7
OnCare Supply Agreement ................................................ 16
Oncology Products ...................................................... 40
OPUS ................................................................... 1
OPUS Matrix Business ................................................... 7
OPUS Station ........................................................... 38
OPUS Station Assets .................................................... 69
OPUS Station Business .................................................. 69
OPUS Station Data ...................................................... 69
OPUS Station Liabilities ............................................... 69
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Term Page
OPUS Sub. .............................................................. 1
OPUS Sub Assets ........................................................ 68
OPUS Sub Liabilities ................................................... 69
OTN .................................................................... 1
OTN Medstation ......................................................... 16
OTNC ................................................................... 1
Partnership ............................................................ 1
Pending Claims ......................................................... 81
PPM .................................................................... 44
Pre-JV Sales Taxes ..................................................... 76
Pre-Merger Taxes ....................................................... 75
Preference Amount ...................................................... 8, 67
Preferred Stock Proposal ............................................... 1
Proposed Legislation ................................................... 88
PSE .................................................................... 3
Pyxis .................................................................. 38
Pyxis Contract ......................................................... 69
Quarterly Certificate .................................................. 81
Record Date ............................................................ 28
Reply Certificate ...................................................... 80
Required AHC Documents ................................................. 48
Retained Assets ........................................................ 69
Retained Business ...................................................... 7, 69
Retained Cash .......................................................... 70
Retained Companies ..................................................... 44
Retained Company ....................................................... 44
Retained Company Material Adverse Effect ............................... 58
Retained Escrow Amount ................................................. 78
Retained Liabilities ................................................... 69
Retained Plans ......................................................... 85
Retained Tax Liabilities ............................................... 75
Rights Agreement ....................................................... 1
Second Anniversary Date ................................................ 78
Second Anniversary Pending Claims ...................................... 78
Section 262 ............................................................ 17
Securities Act ......................................................... 2
Severence Plan ......................................................... 85
Sevin Rosen II ......................................................... 99
Special Meeting ........................................................ 1
SRB Associates ......................................................... 99
Stockholders' Agreement ................................................ 15
Surviving Corporation .................................................. 1
Tax Matters Agreement .................................................. 13
Taxes .................................................................. 75
Time of Contributions .................................................. 67
Time of Distribution ................................................... 7
Transferred Employee Schedule .......................................... 82
Transferred Employees .................................................. 82
106
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Term Page
Transitional Services Agreement ........................................ 16
U.S.C .................................................................. 59
Zaibatsu ............................................................... 99
107
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Index to Financial Statements
Audited Consolidated Financial Statements of Axion Inc.
for each of the three years ended December 31, 1995, 1994
and 1993 with Report of Independent Auditors ......................... F-2
Report of Independent Auditors .......................................... F-3
Consolidated Balance Sheets ............................................. F-4
Consolidated Statements of Operations ................................... F-5
Consolidated Statement of Stockholders' Equity .......................... F-6
Consolidated Statements of Cash Flows ................................... F-7
Notes to Consolidated Financial Statements .............................. F-8
Unaudited Condensed Consolidated Financial Statements of Axion Inc. .....
for the three months ended March 31, 1996 and 1995 ................... F-21
Condensed Consolidated Balance Sheets ................................... F-22
Condensed Consolidated Statements of Operations and Retained Earnings ... F-23
Condensed Consolidated Statements of Cash Flows ......................... F-24
Notes to Condensed Consolidated Financial Statements .................... F-25
Pro Forma Condensed Financial Statements of Axion Inc. and
Axion HealthCare Inc. (giving effect to the proposed
distribution of the outstanding stock of Axion HealthCare
Inc. to stockholders of Axion Inc.) .................................. F-29
Pro Forma Condensed Balance Sheet at March 31, 1996 ..................... F-30
Pro Forma Condensed Statements of Operations
For the year ended December 31, 1995 (also giving effect to
distribution of common stock of OnCare Inc.) ....................... F-31
For the three months ended March 31, 1996 ............................ F-32
Notes to Pro Forma Condensed Financial Statements ....................... F-33
F-1
<PAGE>
<PAGE>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
OF
AXION INC.
Each of the Three Years Ended
December 31, 1995, 1994 and 1993
with
Report of Independent Auditors
F-2
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Axion Inc.
We have audited the accompanying consolidated balance sheets of Axion Inc. as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Axion Inc. at
December 31, 1995 and 1994, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
March 22, 1996, except for Note 11
as to which the date is
August 2, 1996
F-3
<PAGE>
<PAGE>
Axion Inc.
Consolidated Balance Sheets
(in thousands of dollars, except par value per share)
<TABLE>
<CAPTION>
December 31,
1994 1995
---------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............................. $ 13,306 $ 8,522
Short-term investments ................................. 7,476 5,000
Accounts receivable, less allowance
for doubtful accounts of $261 in
1994 and $707 in 1995 ............................... 24,683 41,458
BMS accounts receivable - Sales Agency Agreement ....... 43,887 59,461
Inventories ............................................ 7,131 9,577
Prepaid expenses and other ............................. 663 475
---------------------
Total current assets ................................... 97,146 124,493
Property and equipment ................................. 1,473 1,859
Less accumulated depreciation .......................... (566) (730)
---------------------
Net property and equipment ............................. 907 1,129
Investment in OnCare ................................... -- 3,500
Other assets ........................................... 6 6
---------------------
Total assets ........................................... $ 98,059 $ 129,128
=====================
Liabilities and stockholders' equity
Current liabilities:
Payable to BMS - Sales Agency Agreement ................ $ 36,508 $ 47,755
Borrowings under bank line of credit ................... -- 35,617
Loan payable to BMS .................................... 30,000 --
Accounts payable ....................................... 13,398 19,437
Accrued liabilities .................................... 2,078 2,498
---------------------
Total current liabilities .............................. 81,984 105,307
Deferred income taxes .................................. -- 591
Minority interest ...................................... 4 4
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000
shares authorized; 8,352,184 shares designated,
6,740,890 shares issued and outstanding, $24,663
liquidation preference in 1995 (8,352,184 shares,
6,735,890 shares and $24,613, respectively, in 1994)
at amounts paid-in .................................. 22,992 23,042
Common stock, $0.001 par value, 15,000,000 shares
authorized; 1,604,354 shares issued and outstanding
in 1995 (1,572,290 in 1994), at amounts paid-in ..... 360 471
Accumulated deficit .................................... (7,281) (287)
---------------------
Total stockholders' equity ............................. 16,071 23,226
---------------------
Total liabilities and stockholders' equity ............. $ 98,059 $ 129,128
=====================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
Axion Inc.
Consolidated Statements of Operations
(in thousands, except net income (loss) per share)
<TABLE>
<CAPTION>
Years ended December 31,
1993 1994 1995
---------------------------------
<S> <C> <C> <C>
Net revenues ............................... $ 56,052 $ 126,369 $ 198,950
Costs and expenses:
Cost of revenues ......................... 51,006 112,606 176,292
Sales and marketing ...................... 1,635 1,922 2,007
General and administrative ............... 5,734 8,409 11,442
Product development ...................... 1,607 -- --
---------------------------------
Total costs and expenses ................... 59,982 122,937 189,741
---------------------------------
Income (loss) from operations .............. (3,930) 3,432 9,209
Other income and (expense):
Interest income .......................... 490 1,306 756
Interest expense ......................... (115) (365) (1,037)
Other nonoperating income (expense) ...... (1,407) (2,945) 146
Minority interest ........................ 996 -- --
---------------------------------
Total other income and (expense), net ...... (36) (2,004) (135)
---------------------------------
Income (loss) before provision for income
taxes .................................... (3,966) 1,428 9,074
Provision for income taxes ................. -- -- 1,187
---------------------------------
Net income (loss) .......................... $ (3,966) $ 1,428 $ 7,887
=================================
Net income (loss) per share ................ $ (2.52) $ 0.17 $ 0.90
=================================
Number of shares used in above computation . 1,573 8,190 8,807
=================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
Axion Inc.
Consolidated Statement of Stockholders' Equity
(in thousands of dollars)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Total
---------------------------------------------- Accumulated Stockholders'
Shares Amount Shares Amount Deficit Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ............ 6,102,870 $ 17,248 1,583,600 $ 353 $ (4,743) $ 12,858
Repurchase of common stock ........... -- -- (42,125) (25) -- (25)
Issuance of common stock ............. -- -- 14,297 15 -- 15
Net loss ............................. -- -- -- -- (3,966) (3,966)
--------------------------------------------------------------------------
Balance at December 31, 1993 ............ 6,102,870 17,248 1,555,772 343 (8,709) 8,882
Issuance of Series F preferred stock,
net of issuance costs of $586 ...... 633,020 5,744 -- -- -- 5,744
Issuance of common stock ............. -- -- 16,518 17 -- 17
Net income .............................. -- -- -- -- 1,428 1,428
--------------------------------------------------------------------------
Balance at December 31, 1994 ............ 6,735,890 22,992 1,572,290 360 (7,281) 16,071
Issuance of Series F preferred stock . 5,000 50 -- -- -- 50
Exercise of stock options and other .. -- -- 32,064 111 -- 111
Distribution of common stock of OnCare -- -- -- -- (893) (893)
Net income ........................... -- -- -- -- 7,887 7,887
--------------------------------------------------------------------------
Balance at December 31, 1995 ............ 6,740,890 $ 23,042 1,604,354 $ 471 $ (287) $ 23,226
==========================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
Axion Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
<TABLE>
<CAPTION>
Years ended December 31,
1993 1994 1995
------------------------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ................................................ $ (3,966) $ 1,428 $ 7,887
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Minority interest ........................................... (996) -- --
Depreciation and amortization ............................... 328 233 316
Provision for deferred income taxes ......................... -- -- 591
Issuance of preferred stock for services .................... -- -- 50
Loss on sale of assets ...................................... -- 5 --
Changes in operating assets and liabilities:
Accounts receivable ...................................... 4,320 (23,915) (16,775)
BMS accounts receivable-Sales Agency Agreement ........... -- (43,887) (15,574)
Inventories .............................................. (387) (814) (2,446)
Deposit with GECC ........................................ (11,056) 11,056 --
Prepaid expenses and other ............................... (324) (240) 188
Payable to BMS-Sales Agency Agreement .................... 28,880 7,628 11,247
Accounts payable ......................................... 4,131 4,862 6,039
Accrued liabilities ...................................... 2,442 (519) 420
------------------------------
Net cash provided by (used in) operating activities .............. 23,372 (44,163) (8,057)
Investing activities
Short-term investments ........................................... (2,061) (3,466) 2,476
Purchase of property and equipment ............................... (665) (279) (538)
Proceeds from sale of assets ..................................... -- 15 --
Investment in OnCare ............................................. -- -- (4,393)
------------------------------
Net cash used in investing activities ............................ (2,726) (3,730) (2,455)
Financing activities
Borrowings under bank line of credit ............................. 2,539 -- 38,212
Repayments of borrowings under bank line of credit ............... (3,939) -- (2,595)
Borrowing under long-term debt agreement ......................... 500 -- --
Repayments of long-term debt ..................................... (70) (430) --
Borrowing under loan payable to BMS .............................. -- 36,000 --
Repayments of loan payable to BMS ................................ -- (6,000) (30,000)
Investment in joint venture by BMS ............................... 1,000 -- --
Net proceeds from issuance of preferred stock .................... -- 5,744 --
Proceeds from issuance of common stock and other ................. 15 17 111
Repurchase of common stock ....................................... (25) -- --
------------------------------
Net cash provided by financing activities ........................ 20 35,331 5,728
------------------------------
Net increase (decrease) in cash and cash equivalents ............. 20,666 (12,562) (4,784)
Cash and cash equivalents, beginning of year ..................... 5,202 25,868 13,306
------------------------------
Cash and cash equivalents, end of year ........................... $ 25,868 $ 13,306 $ 8,522
==============================
Supplemental disclosure of cash flow information:
Interest paid in cash ............................................ $ 843 $ 1,315 $ 4,450
==============================
Income tax payments .............................................. $ -- $ -- $ 199
==============================
</TABLE>
See accompanying notes.
F-7
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
1. Accounting Policies
Basis of Presentation
Axion Inc. (individually or collectively with its consolidated subsidiaries, as
the sense requires, "Axion") is a leading cancer-focused healthcare service firm
providing cost containment solutions for the delivery of cancer care. Axion,
either directly or through the Oncology Therapeutics Network Joint Venture, L.P.
(the "Partnership"), provides a clinically oriented, single source of supply for
office based oncologists' oncology drugs and related supplies needs.
The accompanying financial statements include the accounts of Axion and the
following companies:
Oncology Therapeutics Network Corporation ("OTNC"), and the Partnership, a
partnership with Bristol-Myers Squibb Company ("BMS"). OTNC is the general
partner of the Partnership and Bristol-Myers Oncology Therapeutic Network,
Inc., a subsidiary of BMS ("BMOTN"), is the limited partner.
OnCare Inc. ("OnCare"), Axion HealthCare Inc. ("AHC"), and OPUS Health
Systems Inc. ("OPUS"). On December 31, 1995, the 40,000,000 common shares
of OnCare, an oncology physician practice management company, owned by
Axion were distributed by Axion to its shareholders (Note 2). AHC provides
cancer-specific managed care services to cancer care payers and providers,
and OPUS is engaged in information systems applications for office-based
oncologists. Both are in the early stages of development with limited
revenues.
All intercompany accounts and transactions have been eliminated. The financial
interest of BMS in the Partnership is recorded as a minority interest.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash equivalents include money market funds and highly liquid debt instruments
with original maturities of three months or less. The carrying amount of Axion's
cash and cash equivalents approximates its fair value.
Short-term investments consist of marketable securities. Effective January 1,
1994, Axion adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115").
Under FAS 115, investments in marketable securities are reported at fair value.
There was no significant cumulative effect as of January 1, 1994 of adopting FAS
115.
Marketable securities are designated as available for sale and are carried at
approximate fair value
Inventories
Inventories, which consist primarily of pharmaceuticals and supplies for cancer
therapy, are carried at the lower of cost or fair value using the average
weighted cost method.
F-8
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Property and Equipment
Property and equipment is stated at cost. Depreciation of property and equipment
is provided for using the straight-line method over the estimated useful lives
of the respective assets (which range from three to seven years). Leasehold
improvements are amortized over the shorter of the estimated useful life or the
lease term, using the straight-line method.
Revenue Recognition and Accounts Receivable
Axion sells substantially all of its products to U.S. office-based oncologists.
Revenue from sales is recognized when products are shipped. Axion conducts
ongoing credit evaluations of its customers and does not require collateral.
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of entities comprising Axion's customer base. Management
believes that Axion's allowance for doubtful accounts at December 31, 1995 and
1994 is adequate to cover its credit risk. The provision for possible
uncollectible accounts charged to operations was $520, $131 and $37 in 1995,
1994 and 1993, respectively. The amount of write-offs charged to the allowance
for doubtful accounts was $74, $3 and $7 in 1995, 1994 and 1993, respectively.
Sales Agency Agreement with BMS
Under the terms of a Sales Agency Agreement between the Partnership and BMS, the
Partnership is the exclusive sales agent for BMS oncology products (and any
other oncology products that BMS has the right to sell) to office-based
oncologists. The Partnership does not take title to the BMS products that it
sells. No product revenue is recognized by the Partnership on the sale of BMS
products; however, commission income on such BMS product sales is recognized and
included in net revenues. The Partnership does record the related customer
receivables for up to 180 days and the related payables to BMS (see Note 4).
Stock-Based Compensation
Axion accounts for its stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, no compensation expense is recorded for stock options
granted unless the exercise prices are at less than fair values at the dates of
grant.
Per Share Data
Net income (loss) per share has been computed based on the weighted average
shares of common outstanding and dilutive common equivalent shares outstanding.
Common equivalent shares represent shares of preferred stock outstanding (using
the if converted method) and stock options and warrants outstanding (using the
treasury stock method). In 1993, all common equivalent shares were excluded from
the per share computation due to their anti-dilutive effect as a result of the
net loss for the year. In 1994 and 1995, common equivalent shares have been
included in the per share computation.
2. Investment in OnCare
On June 7, 1995, Axion formed OnCare, an oncology physician practice management
company, to acquire and manage oncology practices. Axion received 40,000,000
shares of common stock of OnCare for $40. In July 1995, Axion advanced $5,000 to
OnCare to fund its initial development activities.
On August 11, 1995, OnCare acquired substantially all of the assets of an
oncology practice for $3,832, the issuance of warrants to acquire 1,800,000
shares of common stock in OnCare, and the assumption of certain liabilities.
OnCare
F-9
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
also entered into a long-term management services agreement providing for its
rights to manage the oncology medical group over a 40-year period. The
transaction was accounted for using the purchase method of accounting.
On December 31, 1995, the $5,000 advance was cancelled in part for 700,000
shares of Series A redeemable preferred stock to be issued by OnCare ($3,500)
and in part as a contribution to the capital of OnCare ($1,500). All of OnCare's
40,000,000 common shares held by Axion were distributed to Axion's shareholders.
The holders of each of Axion's preferred and common shares (and the holders of
options and other rights to acquire common shares) received 3.96327 shares of
OnCare common stock for each common equivalent share held in Axion. Axion
retained its interest in the Series A redeemable preferred stock of OnCare.
OnCare is obligated to redeem the Series A preferred stock at a redemption price
of $5 per share at the earlier of December 31, 1996, the closing of a qualifying
underwritten public offering of the common stock in OnCare, the merger or
consolidation of OnCare with or into another corporation, or the sale of all or
substantially all of OnCare's assets.
Operating results of OnCare for the period ended December 31, 1995 are included
in the consolidated statement of operations. Revenues of OnCare for 1995 were
$2,645 and its net loss was $670 after income tax credit benefit of $450
allocated from Axion.
OnCare ceased to be a consolidated subsidiary on December 31, 1995 as a result
of the distribution by Axion of its holdings of the common stock of OnCare. The
condensed financial position of OnCare at December 31, 1995 and Axion's
investment are summarized as follows:
Assets:
Unamortized management services agreement ................. $4,398
Receivables, property and other assets .................... 4,250
-------
8,648
Liabilities:
Bank borrowings ........................................... 2,000
Other ..................................................... 2,255
-------
4,255
-------
Net assets, represented by:
Series A redeemable preferred stock held by Axion -
700,000 shares .......................................... 3,500
Common equity ($1,563 paid in less $670 accumulated
deficit) ................................................ 893
-------
$4,393
=======
Axion's investment - 700,000 shares of Series A
redeemable preferred stock .............................. $3,500
=======
F-10
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
3. Available-For-Sale Securities
The following is a summary of available-for-sale securities, which are carried
at amounts which approximate fair value:
December 31,
1994 1995
----------------------
Cash equivalents - commercial paper .............. $ 8,998 $ 8,457
Short-term investments:
Money market preferred stock ..................... 6,900 5,000
Corporate notes .................................. 576 --
----------------------
7,476 5,000
----------------------
Total ............................................ $16,474 $13,457
======================
The gross realized gains and losses of available-for-sale securities for 1995
and 1994 were not material.
4. The Partnership
In 1993, Axion entered into a series of agreements with BMS, whereby the
Partnership was formed. The Partnership is owned by Axion's wholly owned
subsidiary, OTNC (the "general partner"), and BMS' wholly owned subsidiary,
BMOTN (the "limited partner"). All obligations of each partner to the other are
fully and unconditionally guaranteed by Axion and BMS, respectively. The
Partnership commenced operations on August 23, 1993.
In forming the Partnership, each partner contributed $1,000 in cash. Axion
contributed its ongoing Oncology Therapeutics Network business (its primary
operating business of providing services and distributing oncology drugs and
related supplies to office-based oncologists), excluding any debts or
obligations, and BMS contributed certain of its customer lists and entered into
a Sales Agency Agreement, under which BMS agreed to provide the promotional
support of the Bristol Laboratories Oncology sales force and the Partnership was
appointed the exclusive sales agent for BMS oncology products (and any other
oncology products that BMS has the right to sell) to office-based oncologists.
As the general partner, OTNC manages all of the day-to-day operations of the
Partnership. In addition, Axion provides all administrative, operational and
other services necessary to support the functioning of the Partnership, subject
to being reimbursed for its costs by the Partnership. Such reimbursement totaled
$2,817 in 1995, $2,491 in 1994, and $1,080 in 1993, and has been eliminated in
consolidation.
Under the terms of the Sales Agency Agreement, all pricing decisions and title
to BMS products sold by the Partnership remain with BMS, including risk of loss
for all such products. The terms of the Sales Agency Agreement require that the
Partnership remit payment of invoices to BMS within 60 days of the issuance of
any invoice to a customer for BMS products. BMS will retain the risk of
collectibility of accounts receivable relating to all BMS products sold under
the Sales Agency Agreement. If after 180 days the amount has not been paid, the
Partnership turns over to BMS for collection the uncollected invoice and BMS
refunds to the Partnership the amount of the uncollected invoice that was
previously paid by the Partnership plus interest on the amount at an annual rate
of 12 percent, or, if lower, the maximum rate allowed by law. As of December 31,
1995, BMS accounts receivable and the payable to BMS under the Sales Agency
Agreement were $59,461 and $47,755, respectively. As of December 31, 1994, BMS
accounts receivable and the payable to BMS under the Sales Agency Agreement were
$43,887 and $36,508, respectively. No product revenues are recorded by the
Partnership in connection with the sale of BMS products. BMS pays the
Partnership a commission based upon sales of BMS products. Such commissions
totalled $9,412 in 1995, $6,527 in 1994, and $1,440 in 1993, and are included in
net revenues. Effective January 1, 1994,
F-11
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
BMS agreed to reimburse the Partnership for certain financing costs and General
Electric Capital Corporation ("GECC") fees. In 1994, such reimbursement totaled
$3,817, of which $2,978 is included in other nonoperating income and expense for
the period during which the GECC agreements were in effect, and $839 in 1994 and
$2,752 in 1995 are included as an offset to interest expense for the period
subsequent to the termination of the GECC agreements.
The Partnership has a term of 20 years, but can be terminated earlier at BMS'
option upon one year's notice as of January 1, 2003 or January 1, 2008. In
addition, the right to terminate the partnership agreement and the Sales Agency
Agreement arises under certain circumstances, including breach, bankruptcy,
insolvency, a change in control of Axion or the general partner or the sale by
the general partner of its interest in the Partnership. Under certain
conditions, upon termination of the partnership agreement, the terminating
partner is entitled to purchase the other partner's interest or to require the
other partner to purchase the terminating partner's interest. In addition, in
the event that the Sales Agency Agreement is terminated as a result of a change
in control of Axion, or BMS elects to terminate the Sales Agency Agreement in
2003 or 2008, BMS is required to sell, and Axion is required to buy, BMS'
interest.
OTNC receives a preferential allocation of profits as follows: in 1993, the
first $900 in profits would have been allocated to OTNC if the Partnership had
earned profits, with the balance allocated 80% to OTNC and 20% to the limited
partner; in 1994, this preference was $4,900 with the balance allocated 80:20 in
favor of OTNC; in 1995, the preference was $10,200 with the balance allocated
80:20; in 1996, the preference is $18,750 with the balance allocated 80:20; in
1997, all profits are allocated 70:30; in 1998, 60:40; and after 1998 all
profits are allocated equally.
The preferences due OTNC are cumulative; any unallocated preference is carried
forward for allocation in later years, together with interest at the prime rate
on the accumulated unpaid preference. The aggregate preference of OTNC over the
term of the Partnership, excluding interest, is $34,750 ($35,800 including
interest) of which $4,788 was paid to OTNC in 1995 as a distribution. Generally,
all losses are borne equally by both partners throughout the term of the
Partnership, provided that BMS shall not be allocated losses that cause its
capital account to be negative.
OTNC was allocated a loss of $996, or 50% of the Partnership's loss in the 1993
period, income of $4,788, or 100% of the Partnership's profit in 1994, and
income of $11,083, or 100% of the Partnership's profit in 1995.
5. Financing of Accounts Receivable and Inventories
Prior Arrangements
GECC Agreement (no longer in effect)
In 1993, to facilitate the provision of credit to its customers and to reduce
the requirement for further working capital financing, the Partnership and BMS
entered into agreements with GECC for the sale of eligible accounts receivable
(both BMS and non-BMS product related), subject to a 25% cash holdback by GECC
of the uncollected balance. Proceeds from the sale of BMS and non-BMS product
receivables were remitted directly by GECC to the Partnership, less the
holdback. In 1994, the Partnership incurred $3,310 of GECC fees related to the
sale of BMS receivables and $1,952 of GECC fees related to the sale of non-BMS
products. In 1993, the Partnership incurred $870 of GECC fees related to the
sale of BMS receivables and $537 of GECC fees related to the sale of non-BMS
products. BMS reimbursed the Partnership for certain GECC fees in 1994 and such
reimbursement totaled $2,317. GECC fees, net of reimbursement by BMS, are
included under other nonoperating expense in the statements of operations.
F-12
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
BMS Agreement (no longer in effect)
In September 1994, the Partnership and BMS terminated the agreements with GECC.
Interim financing was then provided by the partners and ultimately by BMS under
a $30,000 secured note agreement payable in full on January 31, 1995. The
$30,000 note was paid in January 1995 out of the initial borrowings under the
bank credit line discussed below.
Current Arrangement - $50,000 Bank Credit Line
In January 1995, the Partnership entered into agreements to establish a $50,000
one year revolving line of credit with a bank. The bank credit line is renewable
annually, if the parties so agree. The current expiration date is December 31,
1996. Interest is payable monthly at interest rates ranging from .25% to .75%
above the bank's reference rate, unless the Partnership elects an optional
interest rate of 0.50% above the bank's offshore rate as defined in the
agreement (6.3% at December 31, 1995). The agreement includes certain covenants
which restrict the Partnership's use of amounts borrowed and its ability to
incur additional obligations and pay distributions. Additionally, certain
covenants of the loan agreement require the Partnership to maintain tangible net
worth and a ratio of liabilities to tangible net worth at determined levels. At
December 31, 1995, Axion had borrowed $35,617 under this agreement. The
borrowings are secured by the Partnership's inventories and accounts receivable.
6. Product Development
In 1992, Axion initiated a product development program whereby it would acquire
rights to certain drug compounds from third parties in exchange for various
payments and development funding. In August 1993, Axion terminated its product
development activities in order to focus its efforts on the development of the
Partnership and the support of clinical studies.
7. Commitments
Axion has an agreement to lease its existing office facility through July 1996.
Rent expense under this lease was $276, $333 and $368 in 1993, 1994 and 1995,
respectively. Minimum future lease payments under this operating lease are $214
in 1996.
Axion has an agreement for management information services through December
2004. Future payments under this agreement are as follows: $2,375 in 1996;
$2,452 in 1997; $2,502 in 1998; $2,552 in 1999; $2,552 in 2000; and $9,120
thereafter.
F-13
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial
Statements (in thousands of dollars, except share and
per share amounts and dividend rates)
8. Stockholders' Equity
Convertible Preferred Stock
The following series of convertible preferred stock have been issued and are
outstanding:
<TABLE>
<CAPTION>
Number of Shares Liquidation Preference
------------------------- ----------------------
Issued and Dividend Carrying
Designated Outstanding Rate Per Share Total Value
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series A ................... 3,166,667 3,135,000 $0.075 $ 0.75 $ 2,351 $ 2,341
Series B ................... 1,600,000 882,353 0.340 3.40 3,000 2,837
Series C ................... 420,000 420,000 0.420 4.79 2,012 1,744
Series D ................... 700,000 700,000 0.560 5.60 3,920 3,899
Series E ................... 965,517 965,517 0.725 7.25 7,000 6,427
Series F ................... 1,500,000 633,020 1.00 10.00 6,330 5,744
------------------------- ----------------------
Balance at December 31, 1994 8,352,184 6,735,890 24,613 22,992
Series F ................... -- 5,000 1.00 10.00 50 50
------------------------- ----------------------
Balance at December 31, 1995 8,352,184 6,740,890 $ 24,663 $ 23,042
========================= ======================
</TABLE>
All preferred shares issued to date are convertible into and carry voting rights
equivalent to common shares on a 1:1 basis. Additionally, conversion is
automatic upon the consent of at least two-thirds of the preferred stock
outstanding or the closing of an underwritten public offering of common stock in
which net proceeds are not less than $10,000 and the price per share for
automatic conversion of Series A is not less than $4.00 per share; for automatic
conversion of Series B, C and D is not less than $7.00 per share; for automatic
conversion of Series E is not less than $7.25 per share; and for automatic
conversion of Series F is not less than $10.00 per share (subject to adjustment
for stock dividends, stock splits or recapitalization).
F-14
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Convertible Preferred Stock (continued)
Any assets remaining after payment of liquidation preferences plus any declared
but unpaid dividends to the holders of the convertible preferred stock would be
distributed pro rata to holders of common and preferred shares on an
as-converted basis until the preferred shareholders of Series A, B, C and E
receive an aggregate of $4.00, $7.00, $7.00 and $9.46 per share, respectively,
inclusive of the respective liquidation preference amounts referred to above.
Thereafter, the remaining assets would be distributed pro rata among the holders
of common shares.
Holders of convertible preferred stock are entitled to noncumulative cash
dividends if and when declared by the Board of Directors. No dividends have been
declared through December 31, 1995.
Warrants
At December 31, 1995, warrants to purchase 25,000 shares of common stock were
outstanding at $6.00 per share. The warrants expire in June 2005.
Stock Option and Restricted Stock Plan
Axion has a Stock Option and Restricted Stock Plan (the "1989 Plan") under which
a total of 2,000,000 shares of common stock have been reserved for issuance to
employees, including officers and directors, nonemployee directors and
consultants of Axion. Incentive options may be granted at a price per share not
less than the fair value of common stock on the date of grant and become
exercisable in increments over periods of one to four years from the date of
grant. Non-qualified options may be granted at a price per share not less than
85% of fair value on the date of grant and become exercisable in increments over
periods of one to five years.
In 1995, Axion allowed employees to cancel certain outstanding options and
receive new grants for a like number at the fair value of the common stock on
the date of grant. Employees elected to cancel and receive new grants for
options on 161,250 shares.
The following table summarizes the option activity under the 1989 Plan for the
years ended December 31, 1995, 1994 and 1993:
Shares Under Price Range
Option Per Share
----------------------------------
Balance at December 31, 1993 740,500 $ 0.075 - $3.00
Granted 142,250 6.00 - 9.00
Canceled (23,404) 0.42 - 9.00
Exercised (16,518) 0.42 - 6.00
----------------------------------
Balance at December 31, 1994 842,828 0.075 - 9.00
Granted 487,583 6.00
Canceled (175,914) 0.42 - 9.00
Exercised (32,064) 0.42 - 6.00
-----------------------------------
Balance at December 31, 1995 1,122,433 $ 0.075 - $6.00
===================================
At December 31, 1995, 1,590,701 shares of common stock were available for
issuance under the 1989 Plan, of which 1,122,433 shares were subject to
outstanding options. At December 31, 1995, incentive options on 522,127 shares
and non-qualified options on 193,756 shares were exercisable.
F-15
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
Executive Stock Option Plan
In 1995, Axion adopted an Executive Stock Option Plan under which a total of
600,000 shares of common stock have been reserved for issuance to officers of
Axion. At December 31, 1995, 600,000 shares were subject to outstanding
incentive and non-qualified stock options. The options are immediately
exercisable, but if exercised the shares of common stock generally would vest
over six years based on continued service. At December 31, 1995, incentive
options on 83,333 shares and non-qualified options on 16,667 shares were vested
and exercisable at exercise prices ranging from $6.00 to $10.00 per share.
9. Income Taxes
Significant components of the provision for income taxes are as follows:
1995
------------
Current:
Federal $ 157
State 439
------------
Total current 596
Deferred:
Federal 430
------------
State 161
------------
Total deferred 591
------------
$ 1,187
============
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Axion's deferred tax liabilities and assets as of December 31, are as follows:
F-16
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
1994 1995
--------------------
Deferred income tax liabilities:
Portion of Partnership income allocated to BMS
for income tax purposes (not for financial
statement preferential allocation purposes) ..... $ -- $(1,393)
State income taxes .................................. (127) --
Other ............................................... (68) (183)
--------------------
Total deferred tax liabilities ......................... (195) (1,576)
Deferred income tax assets:
Allowance for doubtful accounts ..................... 128 400
Unicap adjustment ................................... 84 19
Other reserves and accrued expenses ................. 123 538
Benefit from net operating loss carryforwards ....... 2,506 --
Other ............................................... 85 28
--------------------
Total deferred tax assets .............................. 2,926 985
--------------------
Net deferred tax assets (liabilities) .................. 2,731 (591)
Less: valuation allowance .............................. (2,731) --
--------------------
Net deferred tax liability ............................. $ -- $ (591)
====================
The significant reconciling item in the reconciliation of income tax computed at
the U.S. federal statutory tax rate to the provision for income tax expense is
the reduction in the valuation allowance for deferred tax assets in 1995 as a
result of the utilization of net operating loss carryforwards.
10. Benefit Plan
Axion has a defined contribution plan under the provisions of Section 401(k) of
the Internal Revenue Code covering all eligible employees (the "401(k) Plan").
Employees may contribute to the 401(k) Plan annually up to the Internal Revenue
Service limit. The Plan allows Axion to make matching contributions at the
discretion of the Board of Directors. Axion has not contributed to the 401(k)
Plan since its inception.
11. Proposed Merger with BMS and Distribution of AHC to Shareholders
On August 2, 1996, Axion and BMS signed an agreement and plan of merger, which
contemplates the merger of a newly formed wholly owned subsidiary of BMS into
Axion, with Axion being the surviving company. Holders of shares of Axion's
common stock at the consummation of the proposed merger would receive shares of
common stock of BMS having an aggregate value of $86,000, subject to holdback of
shares of common stock of BMS having a value of $5,000. The $5,000 in shares of
common stock of BMS plus $5,000 in cash otherwise available to AHC will
constitute an escrow fund to secure indemnification obligations to BMS in the
event BMS were to suffer certain defined indemnifiable losses. Prior to
consummation, all the shares of Axion's various series of preferred stock will
be converted into shares of Axion common stock and all of the options and
warrants outstanding to purchase shares of Axion common stock will be either
exercised (including that portion of options that would not yet be exercisable
under normal circumstances) or cancelled. Axion intends to extend loans to
holders of Axion stock options and warrants to assist those holders in paying
for the shares purchased upon exercise of options and warrants. Based on Axion's
shares of preferred and common stock outstanding at December 31, 1995 and shares
of common stock subject to unexercised stock options and warrants at December
31, 1995, the pro forma number of shares of Axion common stock at that date,
assuming full conversion of shares of preferred stock and exercise of
substantially all outstanding options and warrants, would have been 9,977,756
shares (excluding 100,000 shares of Axion common stock pursuant to an option
which is not expected to be exercised). The actual exchange ratio of shares of
BMS common stock for shares of Axion common stock will be a fraction determined
by: (i) the aggregate value of
F-17
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
$86,000, divided by the average closing market price of shares of BMS common
stock during the ten trading days ending five trading days prior to the
consummation of the merger (subject to both a minimum price and a maximum
price); divided by (ii) the number of shares of Axion common stock at
consummation of the merger, assuming full conversion of shares of preferred
stock and exercise of options and warrants for shares of common stock.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. AHC will have received from Axion, as a
contribution to the capital of AHC, substantially all of Axion's assets and
liabilities other than those assets and liabilities related to Axion's interest
in the Partnership and of the OPUS Station automated drug dispensing business.
Among the more significant assets to be transferred to AHC by Axion will be: (i)
a cash distribution from the Partnership to Axion of $13,615 (which would have
required additional borrowings by the Partnership of $9,226 at December 31,
1995), and the remainder of Axion's cash and cash equivalents and short-term
investments ($9,132 at December 31, 1995), subject to adjustment in certain
situations, of which $5,000 will be placed in an escrow fund as previously
disclosed; (ii) the shares of Series A redeemable preferred stock of OnCare
($3,500 representing 700,000 shares at December 31, 1995, which was increased by
$10,000, representing an additional 2,000,000 shares, in February and March
1996, making a total of $13,500 or 2,700,000 shares); and (iii) amounts due
under loans extended to those persons exercising Axion stock options and
warrants (none at December 31. 1995, but approximately $6,500 at that date had
substantially all of the options and warrants then outstanding been exercised
and loans extended for the full exercise price).
The merger of Axion and the newly formed BMS subsidiary is subject to certain
conditions including approval by the holders of Axion's various classes of
stock, regulatory matters and certain other conditions.
Historical operating results of Axion including the Partnership and the OPUS
Station automated drug dispensing business, which constitute the businesses (the
"Retained Business" upon consummation of the merger) to be merged with the newly
formed wholly owned subsidiary of BMS are shown below. In 1995, the operating
results below exclude OnCare, which was formed in June 1995 and the shares of
common stock of which were distributed by Axion Inc. on December 31, 1995, AHC
and the OPUS Matrix business, together the businesses to be distributed to Axion
shareholders (the "Acquired Business") immediately prior to consummation of the
merger. For the 1993
F-18
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
and 1994 operating results below, no adjustments have been made to Axion's
historical results as they would be insignificant.
Summary Operating Results of Retained Business (excluding OnCare and the
Acquired Business in 1995)
<TABLE>
<CAPTION>
Years ended December 31,
1993 1994 1995
-----------------------------------
<S> <C> <C> <C>
Net revenues $ 56,052 $ 126,369 $ 195,335
Costs and expenses:
Cost of revenues 51,006 112,606 174,314
Sales and marketing 1,635 1,922 2,007
General and administrative 5,734 8,409 6,459
Product development 1,607 -- --
-----------------------------------
Total costs and expenses 59,982 122,937 182,780
-----------------------------------
Income (loss) from operations (3,930) 3,432 12,555
Other income and (expense):
Interest income (expense), net 375 941 (220)
Other nonoperating income (expense) (1,407) (2,945) 146
Minority interest 996 -- --
-----------------------------------
Total other income and (expense), net (36) (2,004) (74)
-----------------------------------
Income (loss) before provision for income taxes (3,966) 1,428 12,481
Provision for income taxes -- -- 2,500
-----------------------------------
Net income (loss) $ (3,966) $ 1,428 $ 9,981
===================================
</TABLE>
The historical financial positions of the Retained Business to be merged with
the newly formed wholly owned subsidiary of BMS are shown below. The historical
financial position does not reflect the transfer to AHC by Axion of: (i) a cash
distribution from the Partnership to Axion of $13,615 (which would have required
additional borrowings of $9,226 at December 31, 1995), and the remainder of
Axion's cash and cash equivalents and short-term investments ($9,132 at December
31, 1995), subject to adjustment in certain situations, of which $5,000 will be
placed in an escrow fund as previously disclosed; and (ii) the shares of Series
A redeemable preferred stock of OnCare ($3,500 representing 700,000 shares had
the distribution been made at December 31, 1995); and (iii) the
F-19
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements
(in thousands of dollars, except share and per share amounts)
effect of exercise of unexercised Axion stock options and warrants (and related
loans receivable and cash received) arising after December 31, 1995.
Summary Financial Position of Retained Business (excluding OnCare
and the Acquired Business in 1995)
December 31,
1994 1995
-------------------
Assets
Current assets:
Cash, cash equivalents and short-term investments $ 20,782 $ 13,521
Accounts receivable, less allowance for doubtful accounts 24,683 41,458
BMS accounts receivable - Sales Agency Agreement 43,887 59,461
Inventories 7,131 9,577
Prepaid expenses and other 663 164
-------------------
Total current assets 97,146 124,181
-------------------
Net property and equipment 907 1,129
Investment in OnCare -- 3,500
Other assets 6 6
-------------------
Total assets 98,059 128,816
-------------------
Liabilities
Current liabilities:
Payable to BMS - Sales Agency Agreement 36,508 47,755
Borrowings under bank line of credit -- 35,617
Loan payable to BMS 30,000 --
Accounts payable 13,398 19,348
Accrued liabilities 2,078 2,423
-------------------
Total current liabilities 81,984 105,143
Deferred income taxes -- 591
Minority interest 4 4
-------------------
Total liabilities and minority interest 81,988 105,738
-------------------
Net assets $ 16,071 $ 23,078
===================
F-20
<PAGE>
<PAGE>
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
of
AXION INC.
Three Months Ended March 31, 1996 and 1995
F-21
<PAGE>
<PAGE>
Axion Inc.
Condensed Consolidated Balance Sheets
(in thousands of dollars, except par value per share)
December 31, March 31,
1995 1996
----------------------
(Note) (Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 8,522 $ 6,093
Short-term investments 5,000 1,814
Accounts receivable, less allowance for
doubtful accounts of $707 in 1995 and
$748 in 1996 41,458 46,512
BMS accounts receivable - Sales Agency Agreement 59,461 64,670
Inventories 9,577 10,622
Prepaid expenses and other 475 343
----------------------
Total current assets 124,493 130,054
Property and equipment 1,859 2,060
Less accumulated depreciation (730) (829)
----------------------
Net property and equipment 1,129 1,231
Investment in OnCare 3,500 13,500
Other assets 6 6
----------------------
Total assets $ 129,128 $ 144,791
======================
Liabilities and stockholders' equity Current
liabilities:
Payable to BMS - Sales Agency Agreement $ 47,755 $ 52,148
Borrowings under bank line of credit 35,617 35,617
Accounts payable 19,437 29,408
Accrued liabilities 2,498 2,056
----------------------
Total current liabilities 105,307 119,229
Deferred income taxes 591 591
Minority interest 4 4
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares
authorized; 8,352,184 shares designated, 6,740,890
shares issued and outstanding, $24,663 liquidation
preference in 1995 and 1996, at amounts paid in 23,042 23,042
Common stock, $0.001 par value, 15,000,000 shares
authorized; 1,604,354 shares issued and outstanding
in 1995 and 1996, at amounts paid in 471 471
Retained earnings (accumulated deficit) (287) 1,454
----------------------
Total stockholders' equity 23,226 24,967
----------------------
Total liabilities and stockholders' equity $ 129,128 $ 144,791
======================
Note: The consolidated balance sheet at December 31, 1995 has been derived
from the audited consolidated financial statements at that date but
does not include all the footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
F-22
<PAGE>
<PAGE>
Axion Inc.
Condensed Consolidated Statements of Operations
and Retained Earnings (Accumulated Deficit)
(in thousands of dollars, except per share amounts)
Three months ended
March 31,
1995 1996
--------------------
(Unaudited)
Net revenues $ 40,442 $ 60,443
Costs and expenses:
Cost of revenues 36,193 54,465
Sales and marketing 505 476
General and administrative 2,490 2,598
--------------------
Total costs and expenses 39,188 57,539
Income from operations 1,254 2,904
Interest income (expense), net 42 (65)
--------------------
Income before provision for income taxes 1,296 2,839
Provision for income taxes 96 1,098
--------------------
Net income (per share: $0.14 in 1995 and $0.20 in 1996) 1,200 1,741
Accumulated deficit at beginning of period (7,281) (287)
--------------------
Retained earnings (accumulated deficit) at end of period $ (6,081) $ 1,454
====================
See accompanying notes.
F-23
<PAGE>
<PAGE>
Axion Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
Three months ended
March 31,
1995 1996
--------------------
(Unaudited)
Operating activities
Net income $ 1,200 $ 1,741
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 79 99
Changes in operating assets and liabilities:
Accounts receivable (4,502) (5,054)
BMS accounts receivable - Sales Agency Agreement (6,139) (5,209)
Inventories 1,743 (1,045)
Prepaid expenses and other (800) 132
Payable to BMS - Sales Agency Agreement 4,992 4,393
Accounts payable (1,500) 9,971
Accrued liabilities (114) (442)
--------------------
Net cash provided by (used in) operating activities (5,041) 4,586
Investing activities
Short-term investments (1,256) 3,186
Purchase of property and equipment (218) (201)
Additional investment in OnCare -- (10,000)
--------------------
Net cash provided by (used in) investing activities (1,474) (7,015)
Financing activities
Borrowing under bank line of credit 27,419 --
Repayments of loan payable to BMS (30,000) --
Proceeds from issuance of common stock 7 --
--------------------
Net cash used in financing activities (2,574) --
--------------------
Net decrease in cash and cash equivalents (9,089) (2,429)
Cash and cash equivalents, beginning of period 13,306 8,522
--------------------
Cash and cash equivalents, end of period $ 4,217 $ 6,093
====================
Supplemental disclosure of cash flow information
Interest paid in cash $ 1,033 $ 838
====================
Income tax payments $ 49 $ 450
====================
See accompanying notes.
F-24
<PAGE>
<PAGE>
Axion Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands of dollars)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements for each of the three years in the period ended December
31, 1995 and footnotes thereto included on pages F-3 to F-19.
2. Investment in OnCare
In February and March 1996, Axion advanced an additional $10,000 to OnCare Inc.
("OnCare") in exchange for an additional 2,000,000 shares of OnCare Series A
redeemable preferred stock to be issued, increasing its investment in the Series
A preferred stock to $13,500, representing 2,700,000 shares. OnCare is obligated
to redeem the Series A preferred stock at a redemption price of $5 per share at
the earlier of December 31, 1996, the closing of a qualifying underwritten
public offering of the common stock in OnCare, the merger or consolidation of
OnCare with or into another corporation, or the sale of all or substantially all
of OnCare's assets.
OnCare ceased to be a consolidated subsidiary on December 31, 1995, as a result
of the distribution by Axion of its holdings of the common stock of OnCare.
Operating results of OnCare for the three months ended March 31, 1996 are not
included in Axion's consolidated statement of income for that period. Revenues
of OnCare for the three-month period were $2,624 and its net loss was $575,
without any income tax benefit. The condensed financial position of OnCare at
March 31, 1996 and Axion's investment are summarized as follows:
Assets:
Cash $ 6,759
Receivables, property and other assets 6,508
Unamortized management services agreements
and other intangible assets 4,579
-------
17,846
Liabilities:
Bank borrowings 2,000
Other 2,028
-------
4,028
-------
Net assets, represented by:
Series A redeemable preferred stock held by
Axion - 2,700,000 shares 13,500
Common equity ($1,563 paid in less $1,245
accumulated deficit) 318
-------
$13,818
=======
Axion's investment - 2,700,000 shares of Series A
redeemable preferred stock $13,500
========
F-25
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands of dollars)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders
On August 2, 1996, Axion and BMS signed an agreement and plan of merger, which
contemplates the merger of a newly formed wholly owned subsidiary of BMS into
Axion, with Axion being the surviving company. Holders of shares of Axion's
common stock at the consummation of the proposed merger would receive shares of
common stock of BMS having a value of $86,000, subject to holdback of shares of
common stock of BMS having a value of $5,000. The $5,000 in shares of common
stock of BMS plus $5,000 in cash otherwise available to AHC will constitute an
escrow fund to secure indemnification obligations to BMS in the event BMS were
to suffer certain defined indemnifiable losses. Prior to consummation, all the
shares of Axion's various series of preferred stock will be converted into
shares of Axion common stock and all of the options and warrants outstanding to
purchase shares of Axion common stock will be either exercised (including that
portion of options that would not yet be exercisable under normal circumstances)
or cancelled. Axion intends to extend loans to holders of Axion stock options
and warrants to assist those holders in paying for the shares purchased upon
exercise of options and warrants. Based on Axion's shares of preferred and
common stock outstanding at March 31, 1996 and shares of common stock subject to
unexercised stock options and warrants at March 31, 1996, the pro forma number
of shares of Axion common stock at that date, assuming full conversion of shares
of preferred stock and exercise of substantially all outstanding options and
warrants, would have been 9,977,756 shares (excluding 100,000 shares of Axion
common stock pursuant to an option which is not expected to be exercised). The
actual exchange ratio of shares of BMS common stock for shares of Axion common
stock will be a fraction determined by: (i) the aggregate value of $86,000,
divided by the average closing market price of shares of BMS common stock during
the ten trading days ending five trading days prior to the consummation of the
merger (subject to both a minimum price and a maximum price); divided by (ii)
the number of shares of Axion common stock at consummation of the merger,
assuming full conversion of shares of preferred stock and exercise of options
and warrants for shares of common stock.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. AHC will have received from Axion, as a
contribution to the capital of AHC, substantially all of Axion's assets and
liabilities other than those assets and liabilities related to Axion's interest
in Partnership and the OPUS station automated drug dispensing and inventory
tracking systems business. Among the more significant assets to be transferred
to AHC by Axion will be: (i) a cash distribution from the Partnership to Axion
of $13,615 (which would have required additional borrowings by the Partnership
of $11,074 at March 31, 1996), and the remainder of Axion's cash and cash
equivalents and short-term investments ($5,365 at March 31, 1996), subject to
adjustment in certain situations, of which $5,000 will be placed in an escrow
fund as previously disclosed; (ii) the shares of Series A redeemable preferred
stock of OnCare (2,700,000 shares with a redemption value and carrying cost of
$13,500); and (iii) amounts due under loans extended to those persons exercising
Axion stock options and warrants (none at March 31, 1996, but approximately
$6,500 at that date had substantially all of the options and warrants then
outstanding been exercised and loans extended for the full exercise price).
The merger of Axion and the newly formed BMS subsidiary is subject to certain
conditions including approval by the holders of Axion's various classes of
stock, regulatory matters and certain other conditions.
F-26
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands of dollars)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders (continued)
Historical operating results of Axion including the Partnership and the OPUS
Station automated drug dispensing and inventory tracking systems business, which
constitute the businesses (the "Retained Business" upon consummation of the
merger) to be merged with the newly formed wholly owned subsidiary of BMS are
shown below. The historical operating results exclude AHC and the OPUS Matrix
business, the businesses to be distributed to Axion shareholders (the "Acquired
Business") immediately prior to consummation of the merger.
Summary Operating Results of Retained Business (excluding the Acquired Business)
Three months ended
March 31,
1995 1996
-----------------------
Net revenues $ 40,315 $ 60,398
Costs and expenses:
Cost of revenues 36,114 54,437
Sales and marketing 505 476
General and administrative 1,665 1,572
----------------------
Total costs and expenses 38,284 56,485
----------------------
Income from operations 2,031 3,913
Interest income (expense), net 42 (65)
----------------------
Income before provision for income taxes 2,073 3,848
Provision for income taxes 406 1,500
----------------------
Net income $ 1,667 $ 2,348
======================
F-27
<PAGE>
<PAGE>
Axion Inc.
Notes to Consolidated Financial Statements (continued)
(in thousands of dollars)
3. Proposed Merger with BMS and Distribution of AHC to Shareholders (continued)
The historical financial position of the Retained Business to be merged with the
newly formed wholly owned subsidiary of BMS is shown below. The historical
financial position does not reflect the transfer to AHC by Axion of: (i) a cash
distribution from the Partnership to Axion of $13,615, (which would have
required additional borrowings by the Partnership of $11,074 at March 31,1996)
and the remainder of Axion's cash and cash equivalents and short-term
investments ($5,365 at March 31, 1996), subject to adjustment in certain
situations, of which $5,000 will be placed in an escrow fund; and (ii) the
shares of Series A redeemable preferred stock of OnCare ($13,500 representing
2,700,000 shares at March 31, 1996); and (iii) the effect of exercise of
unexercised Axion stock options and warrants (and related loans receivable and
cash received) arising after March 31, 1996.
Summary Financial Position of Retained Business (excluding the Acquired
Business) at March 31, 1996
Assets
Current assets:
Cash, cash equivalents and short-term $ 7,906
Accounts receivable, less allowance for
doubtful accounts 46,446
BMS accounts receivable - Sales Agency
Agreement 64,670
Inventories 10,622
Prepaid expenses and other 274
-----------
Total current assets 129,918
-----------
Net property and equipment 877
Investment in OnCare 13,500
Other assets 6
-----------
Total assets 144,301
Liabilities:
Current liabilities:
Payable to BMS - Sales Agency Agreement 52,148
Borrowings under bank line of credit 35,617
Accounts payable 28,983
Accrued liabilities 1,746
-----------
Total current liabilities 118,494
Deferred income taxes 591
Minority interest 4
-----------
Total liabilities and minority interest 119,089
-----------
Net assets $ 25,212
===========
F-28
<PAGE>
<PAGE>
PRO FORMA CONDENSED FINANCIAL STATEMENTS
OF
AXION INC.
and
AXION HEALTHCARE INC.
(Giving Effect to the Proposed Distribution
of Stock of Axion HealthCare Inc.
to holders of Stock of Axion Inc.)
F-29
<PAGE>
<PAGE>
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Balance Sheets
(in thousands of dollars)
(giving effect to the proposed distribution of outstanding stock of AHC
to holders of stock of Axion Inc. ("Axion"))
<TABLE>
<CAPTION>
Pro Forma
Historical- March 31, 1996
March 31, ----------------------------
1996 Pro Forma Axion
Axion Adjustments- (excluding
Consolidated Increase AHC AHC)
-------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash, cash equivalents and short-term
investments $ 7,907 $ 11,074(a) $ 18,981(b) $ --
Accounts receivable, less allowance for
doubtful accounts 46,512 -- 66 46,446
BMS accounts receivable - Sales Agency
Agreement 64,670 -- -- 64,670
Inventories 10,622 -- -- 10,622
Prepaid expenses and other 343 -- 69 274
-------------------------------------------------------------
Total current assets 130,054 11,074 19,116 122,012
Net property and equipment 1,231 -- 354 877
Investment in OnCare 13,500 -- 13,500 --
Other assets 6 -- -- 6
-------------------------------------------------------------
Total assets $ 144,791 $ 11,074 $ 32,970 $ 122,895
=============================================================
Liabilities and stockholders' equity
Current liabilities:
Payable to BMS - Sales Agency Agreement $ 52,148 $ -- $ -- $ 52,148
Borrowings under bank line of credit 35,617 11,074(a) -- 46,691
Accounts payable 29,408 -- 425 28,983
Accrued liabilities 2,056 -- 310 1,746
-------------------------------------------------------------
Total current liabilities 119,229 11,074 735 129,568
Deferred income taxes 591 -- -- 591
Minority interest 4 -- -- 4
Stockholders' equity (net capital deficiency) 24,967 -- 32,235 (7,268)
-------------------------------------------------------------
Total liabilities and stockholders' equity $ 144,791 $ 11,074 $ 32,970 $ 122,895
=============================================================
</TABLE>
- -------------------------
(a) Additional borrowings of $11,074 by the Partnership sufficient to fund a
cash distribution of $13,615 from the Partnership to Axion.
(b) Upon the consummation of the proposed merger of Axion with BMS, $5,000 of
cash of AHC will be deposited in an escrow fund to secure indemnification
obligations to BMS in the event BMS were to suffer certain defined
indemnifiable losses from its merger with Axion.
See accompanying notes.
F-30
<PAGE>
<PAGE>
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Statements of Operations
(in thousands of dollars)
(giving effect to distribution of common stock of OnCare Inc. ("OnCare")
and the proposed distribution of outstanding stock of AHC to holders
of stock of Axion)
<TABLE>
<CAPTION>
Pro Forma-
Year ended December 31,
Historical- 1995
Year ended _____________________________________
December 31, Pro Forma Axion
1995 Adjustments- (excluding
Axion Increase OnCare and
Consolidated (Decrease) OnCare AHC AHC)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 198,950 $ -- $ 2,645 $ 970 $ 195,335
Costs and expenses:
Costs of revenues 176,292 -- 1,686 292 174,314
Sales and marketing 2,007 -- -- -- 2,007
General and administrative 11,442 -- 2,018 2,965 6,459
----------------------------------------------------------------------
Total costs and expenses 189,741 -- 3,704 3,257 182,780
----------------------------------------------------------------------
Income (loss) from operations 9,209 -- (1,059) (2,287) 12,555
Other income (expense):
Interest income (expense), net (281) -- (61) -- (220)
Other nonoperating income (expense) 146 -- -- -- 146
----------------------------------------------------------------------
Total other income (expense), net (135) -- (61) -- (74)
----------------------------------------------------------------------
Income (loss) before provision for income taxes 9,074 -- (1,120) (2,287) 12,481
Provision for income taxes 1,187 1,313(a) -- -- 2,500
----------------------------------------------------------------------
Net income $ 7,887 $ (1,313) $ (1,120) $ (2,287) $ 9,981
======================================================================
</TABLE>
- ----------
(a) Add back of allocated income tax benefit of losses of OnCare and AHC, which
benefit would not have been available currently if OnCare and AHC had not
been consolidated subsidiaries of Axion.
See accompanying notes.
F-31
<PAGE>
<PAGE>
Axion Inc.
and
Axion HealthCare Inc. ("AHC")
Pro Forma Condensed Statements of Operations
(in thousands of dollars)
(giving effect to the proposed distribution of stock of AHC
to holders of stock of Axion)
<TABLE>
<CAPTION>
Pro Forma -- Three months
ended March 31,
Historical- 1996
Three months --------------------------------------------
ended March 31, Pro Forma Axion
1996 Adjustments- (excluding
Axion Increase OnCare and
Consolidated (Decrease) AHC AHC)
-----------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 60,443 $ -- $ 45 $ 60,398
Costs and expenses:
Costs of revenues 54,465 -- 28 54,437
Sales and marketing 476 -- -- 476
General and administrative 2,598 -- 1,026 1,572
-----------------------------------------------------------
Total costs and expenses 57,539 -- 1,054 56,485
-----------------------------------------------------------
Income (loss) from operations 2,904 -- (1,009) 3,913
Interest income (expense), net (65) -- -- (65)
-----------------------------------------------------------
Income (loss) before provision for
income taxes 2,839 -- (1,009) 3,848
Provision for income taxes 1,098 402(a) -- 1,500
-----------------------------------------------------------
Net income (loss) $ 1,741 $ (402) $ (1,009) $ 2,348
===========================================================
</TABLE>
- ----------
(a) Add back of allocated income tax benefit of losses of AHC, which benefit
would not have been available currently if AHC had not been a consolidated
subsidiary of Axion.
See accompanying notes.
F-32
<PAGE>
<PAGE>
Axion Inc. and Axion HealthCare Inc.
Notes to Pro Forma Condensed Financial Statements
(in thousands of dollars)
1. Proposed Distribution of all Stock of AHC to Stockholders of Axion
Immediately prior to consummation of the merger of a subsidiary of BMS with
Axion Inc. ("Axion"), Axion intends to distribute to its then stockholders all
of the outstanding shares of Axion HealthCare Inc. ("AHC"), which will represent
100% ownership in AHC. Prior to that distribution, AHC will have received from
Axion, as a contribution to the capital of AHC, substantially all of Axion's
assets and liabilities other than those assets and liabilities related to
Axion's interest in the Partnership and the OPUS station automated drug
dispensing business. Among the more significant assets to be transferred to AHC
by Axion will be: (i) a cash distribution from the Partnership to Axion of
$13,615 (which would have required additional borrowings by the Partnership of
$11,074 at March 31, 1996) and the remainder of Axion's cash and cash
equivalents and short-term investments ($5,365 at March 31, 1996), subject to
adjustment in certain situations, of which $5,000 will be placed in an escrow
fund (as discussed below); (ii) the shares of Series A redeemable preferred
stock of OnCare (2,700,000 shares with a redemption value and cost of $13,500);
and (iii) amounts due under loans extended to those persons exercising Axion
stock options and warrants (none at March 31, 1996, but approximately $6,500 at
that date had substantially all of the options and warrants then outstanding
been exercised and loans extended for the full exercise price).
2. Pro Forma Condensed Balance Sheets
The pro forma condensed balance sheets give effect to the distribution of AHC by
Axion, after the transfer from Axion to AHC of: (i) a cash distribution from the
Partnership to Axion of $13,615, (which would have required additional
borrowings by the Partnership of $11,074 at March 31, 1996) and $5,365 of cash
and cash equivalents and short-term investments at March 31, 1996 (representing
the remainder of Axion's cash and cash equivalents and short-term investments),
subject to adjustment in certain situations, of which $5,000 will be placed in
an escrow fund (as discussed below); and (ii) $13,500 redemption and carrying
value of the 2,700,000 shares of Series A redeemable preferred stock of OnCare.
The pro forma condensed balance sheets do not reflect the transfer of loans
receivable (none at March 31, 1996 but approximately $6,500 at that date had
substantially all of the options and warrants then outstanding been exercised
and loans extended for the full exercise price) from Axion to AHC.
Upon consummation of the proposed merger of Axion with BMS, $5,000 of cash of
AHC will be deposited in an escrow fund to secure indemnification obligations to
BMS in the event BMS were to suffer certain defined indemnifiable losses from
its merger with Axion. The segregation of this amount of cash is not reflected
in the pro forma condensed balance sheets.
3. Pro Forma Condensed Income Statements
The pro forma condensed income statements give effect to the separation of
OnCare and AHC from Axion, as if the common stock of both OnCare and AHC had
been distributed by Axion prior to 1995. The losses of OnCare and AHC would not
have been available to be used in Axion's income tax returns and there would
have been no current income tax benefit from these losses, had the distribution
been made prior to 1995.
F-33
<PAGE>
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation,
hereinafter a "derivative action"), if such persons acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal actions or proceedings, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) actually and reasonably incurred
in connection with the defense or settlement of such action, and the DGCL
requires court approval before there can be any indemnification where the person
seeking indemnification has been found liable to the corporation. Pursuant to
its terms, the DGCL is not exclusive of other rights to indemnification that may
be granted by a corporation's by-laws, disinterested director vote, stockholder
vote, agreement or otherwise.
Under the terms of the Registrant's By-laws, each director and officer is
indemnified by the Registrant, to the full extent permitted by law, against: (i)
expenses incurred or paid by the director or officer in connection with any
claim made against such director or officer, or any actual or threatened action,
suit or proceeding (civil, criminal, administrative, investigative or other,
including appeals and whether or not relating to a date prior to the adoption of
this by-law) in which such director or officer may be involved as a party or
otherwise, by reason of being or having been a director or officer of the
Registrant, or of serving or having served at the request of the Registrant as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise, or by reason of any action taken or not
taken by such director or officer in such capacity, and (ii) the amount or
amounts paid by the director or officer in settlement of any such claim, action,
suit or proceeding or any judgment or order entered therein; however,
notwithstanding anything to the contrary in the Registrant's By-laws, where a
director or officer seeks indemnification in connection with a proceeding
voluntarily initiated by such director or officer the right to indemnification
granted thereunder shall be limited to proceedings where such director or
officer has been wholly successful on the merits. The term "expenses" includes,
but is not limited to, reasonable amounts for attorneys' fees, costs,
disbursements and other expenses and the amount or amounts of judgments, fines,
penalties and other liabilities.
Article Fourteenth of the Registrant's Restated Certificate of
Incorporation provides that subject to the provisions of the DGCL, no director
of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director
except to the extent that such liability arises (i) from a breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) as a
result of acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
relating to unlawful stock purchase or redemption or (iv) any transaction from
which the director derived an improper personal benefit.
Item 21. Exhibits and Financial Statement Schedules.
The exhibits and financial statement schedules to this Registration
Statement are listed in the Exhibit Index which immediately follows the
signature pages to this Registration Statement and which is incorporated herein
by reference.
<PAGE>
<PAGE>
Item 22. Undertakings.
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final jurisdiction of
such issue.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
D. The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offering
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
E. The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in the documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
F. The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
G. The undersigned Registrant hereby undertakes:
1. To file during any period in which offers and sales are being made,
a post-effective amendment to this Registration Statement:
a. To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
b. To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
II-2
<PAGE>
<PAGE>
c. To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
2. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
<PAGE>
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
authorizes and appoints John L. McGoldrick and Alice C. Brennan or either of
them, as such person's attorney-in-fact, with full power of substitution and
resubstitution, to sign and file on such person's behalf individually and in
each capacity stated below any and all amendments (including post-effective
amendments) to this Registration Statement, which amendments may make such
changes in this Registration Statement as such attorney-in-fact deems
appropriate.
------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the second day of August, 1996.
BRISTOL-MYERS SQUIBB COMPANY,
by \s\ Charles A. Heimbold, Jr.
-------------------------------------
Name: Charles A. Heimbold, Jr.
Title: The Chairman of the Board,
Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
\s\ Charles A. Heimbold, Jr. Chairman of the Board, Chief August 2, 1996
- ------------------------------ Executive Officer and Director
Charles A. Heimbold, Jr. (Principal Executive Officer)
\s\ Michael F. Mee Chief Financial Officer and August 2, 1996
- ------------------------------ Senior Vice President Corporate
Michael F. Mee Staff (Principal Financial Officer)
\s\ Frederick S. Schiff Controller and Vice President August 2, 1996
- ------------------------------ Corporate Staff (Principal
Frederick S. Schiff Accounting Officer)
- ------------------------------ Director
Robert E. Allen
\s\ Michael E. Autera Executive Vice President and August 2, 1996
- ------------------------------ Director
Michael E. Autera
\s\ Ellen V. Futter Director August 2, 1996
- ------------------------------
Ellen V. Futter
II-4
<PAGE>
<PAGE>
Signature Title Date
--------- ----- ----
\s\ Louis V. Gerstner, Jr. Director August 2, 1996
- ------------------------------
Louis V. Gerstner, Jr.
- ------------------------------ Director August 2, 1996
John D. Macomber
\s\ James D. Robinson Director August 2, 1996
- ------------------------------
James D. Robinson III
\s\ Andrew C. Sigler Director August 2, 1996
- ------------------------------
Andrew C. Sigler
\s\ Louis W. Sullivan Director August 2, 1996
- ------------------------------
Louis W. Sullivan, M.D.
- ------------------------------ Executive Vice President,
Kenneth E. Weg President Pharmaceutical
Group and Director
II-5
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, dated as of July 31, 1996, among
Bristol-Myers Squibb Company, OTN Acquisition Sub Inc. and Axion
Inc., (filed as Appendix A to the Proxy Statement/Prospectus)
3.1 Restated Certificate of Incorporation of Bristol-Myers Squibb
Company (incorporated herein by reference to Exhibit 4a to
Registration Statement No. 33- 33682 on Form S-3 filed on March 7,
1990)
3.2 By-laws of Bristol-Myers Squibb Company, as amended through May 2,
1995 (incorporated herein by reference to Exhibit 3b to the Form
10-Q for the quarterly period ended March 31, 1995)
3.3 Amended and Restated Certificate of Incorporation of Axion Inc.
3.4 Certificate of Merger of Axion, dated December 21, 1995
3.5 Bylaws of Axion, as amended and restated on June 29, 1992
4.1 Letter of Agreement dated March 28, 1984 (incorporated herein by
reference to Exhibit 4 to Form 10-K for the fiscal year ended
December 31, 1983)
4.2 Rights Agreement, dated as of December 4, 1987, between
Bristol-Myers Squibb Company and The Chase Manhattan Bank as
successor to Manufacturers Hanover Trust Company, as amended
(incorporated herein by reference to Exhibit 1 to the Form 8-A dated
December 10, 1987, and Exhibit 1 to the Form 8 dated July 27, 1989)
4.3 Indenture, dated as of June 1, 1993, between Bristol-Myers Squibb
Company and The Chase Manhattan Bank (National Association), as
trustee (incorporated herein by reference to Exhibit 4.1 to the Form
8-K dated May 27, 1993, and filed on June 3, 1993)
4.4 Form of 7.15% Debenture Due 2023 of Bristol-Myers Squibb Company
(incorporated herein by reference to Exhibit 4.2 to the Form 8-K
dated May 27, 1993, and filed on June 3, 1993)
5.1* Opinion of Cravath, Swaine & Moore as to the validity of the
securities being issued
8.1 Opinion of Cravath, Swaine & Moore regarding tax matters (Exhibits
thereto included in Exhibit 8.3)
8.2 Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP, regarding tax matters (Exhibits thereto included in Exhibit
8.3)
8.3 Opinion of Ernst & Young LLP regarding tax matters (including
Exhibits A, B, and C)
11.1 Statement of Ernst & Young LLP regarding computation of per share
earnings for Axion Inc.
11.2 Computation of per share earnings for Bristol Myers Squibb Company
(incorporated herein by reference to Exhibit 11 to Form 10-K for the
fiscal year ended December 31, 1995)
23.1 Consents of Cravath, Swaine & Moore (included in Exhibit 5.1 and
Exhibit 8.1, respectively)
23.2 Consent of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP (included in Exhibit 8.2)
23.3 Consent of Ernst & Young LLP
23.4 Consent of Ernst & Young LLP regarding summarization of tax opinion
(included in Exhibit 8.3)
23.5 Consent of Price Waterhouse LLP
- ----------
* To be filed by amendment
II-6
<PAGE>
<PAGE>
24.1 Power of Attorney of certain officers and directors (included in
Part II to the Registration Statement)
99.1 Form of Proxy to be used in soliciting holders of Axion Common Stock
and Axion Preferred Stock
99.2 Limited Partnership Agreement dated as of July 8, 1993, between
Oncology Therapeutics Network Corporation and Bristol-Myers Oncology
Therapeutic Network, Inc.
99.3 Sales Agency Agreement dated as of July 8, 1993, between
Bristol-Myers Squibb Company and Oncology Therapeutics Network Joint
Venture, L.P.
99.4 Trademark License Agreement dated as of July 8, 1993, between
Bristol-Myers Squibb Company and Oncology Therapeutics Network Joint
Venture, L.P.
II-7
<PAGE>
<PAGE>
APPENDIX A
================================================================================
AGREEMENT AND PLAN OF MERGER
Dated as of August 2, 1996
among
BRISTOL-MYERS SQUIBB COMPANY,
OTN ACQUISITION SUB INC.
and
AXION INC.
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I
The Merger
1.01. The Merger............................................................3
1.02. Closing...............................................................3
1.03. Effective Time........................................................3
1.04. Effects of the Merger.................................................4
1.05. Certificate of Incorporation and By-Laws..............................4
1.06. Directors.............................................................4
1.07. Officers..............................................................4
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
2.01. Effect on Capital Stock
(a) Cancelation of Treasury
Stock; Axion-Owned Stock
and BMS-Owned Stock.............................................4
(b) Conversion of Axion Common Stock................................5
(c) Conversion of BMS Sub Common Stock..............................7
(d) Shares of Dissenting Stockholders...............................7
2.02. Exchange of Certificates
(a) Exchange Agent..................................................8
(b) Exchange Procedures.............................................8
(c) Distributions with Respect
to Unexchanged Shares...........................................9
(d) No Further Ownership Rights
in Axion Common Stock..........................................10
(e) No Fractional Shares...........................................10
(f) Termination of Exchange Fund...................................11
(g) No Liability...................................................11
(h) Withholding Rights.............................................11
(i) Indemnification Matters; Appointment
of AHC as Representative; Escrow...............................12
2.03. Payment of Axion Expenses............................................12
<PAGE>
<PAGE>
2
Section Page
- ------- ----
ARTICLE III
Certain Pre-Merger Transactions
3.01. Ancillary Agreements.................................................13
3.02. Formation of OPUS Sub................................................14
3.03. Related Transactions.................................................14
ARTICLE IV
Representations and Warranties
4.01. Representations and Warranties of Axion
(a) Organization, Standing
and Corporate Power............................................15
(b) Subsidiaries...................................................17
(c) Capital Structure..............................................18
(d) Authority; Noncontravention....................................19
(e) Financial Statements;
Undisclosed Liabilities........................................22
(f) Information Supplied...........................................25
(g) Absence of Certain Changes or Events...........................26
(h) Benefit Plans, Employment
and Labor Relations............................................26
(i) Absence of Changes in Benefit Plans............................29
(j) Taxes..........................................................29
(k) No Excess Parachute Payments...................................31
(l) State Takeover Statutes........................................31
(m) Brokers; Fees and Expenses.....................................32
(n) Matters Related to the Distribution
Agreement....................................................32
(o) Compliance with Applicable Laws................................33
(p) Retained Business..............................................35
(q) Intellectual Property..........................................36
(r) Assets Other Than Real Property Interests......................38
(s) Title to Real Property.........................................40
(t) Litigation.....................................................41
(u) Employee and Labor Matters.....................................42
(v) Contracts......................................................44
(w) Insurance......................................................47
(x) Customer Accounts Receivable;
Inventories....................................................48
(y) Accounts; Safe Deposit Boxes;
Powers of Attorney; Officers and Directors.....................49
(z) Transactions with Affiliates...................................50
<PAGE>
<PAGE>
3
Section Page
- ------- ----
(aa) Effect of Transaction..........................................50
(bb) Disclosure.....................................................50
(cc) Suppliers......................................................51
(dd) Customers......................................................51
(ee) Accuracy of Representations
and Warranties.................................................52
4.02. Representations and Warranties of BMS
(a) Organization, Standing
and Corporate Power............................................52
(b) Validly Issued.................................................52
(c) Authority; Noncontravention....................................53
(d) SEC Documents..................................................54
(e) Absence of Certain Changes or Events...........................55
(f) Litigation.....................................................55
(g) Accuracy of Representations
and Warranties.................................................56
(h) Information Supplied...........................................56
(i) Voting Requirements............................................56
(j) Interim Operations of BMS Sub..................................56
(k) Brokers, Fees and Expenses.....................................56
ARTICLE V
Covenants
5.01. Ordinary Conduct of Axion and its Subsidiaries
(a) Ordinary Course................................................56
(b) Changes in Stock; Dividends....................................58
(c) Governing Documents............................................58
(d) Change in Business.............................................58
(e) No Acquisitions................................................58
(f) No Dispositions................................................59
(g) Indebtedness...................................................59
(h) Capital Expenditures...........................................59
(i) Benefit Plans; Compensation....................................60
(j) Accounting Policies............................................60
(k) Affiliate Transactions.........................................60
(l) Maintenance of Properties......................................60
(m) Real Property Matters..........................................60
(n) Material Contracts.............................................61
(o) Agreements.....................................................61
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5.02. Additional Covenants of Axion
(a) Actions Affecting the Contributions,
the Distribution or the Merger.................................61
(b) Intercompany Transactions......................................62
(c) Advice of Changes; Filings.....................................62
(d) Insurance......................................................62
(e) Resignations...................................................62
(f) Supplemental Disclosure........................................63
(g) Exclusivity....................................................63
5.03. Covenants of BMS
(a) Actions Affecting the Merger...................................65
ARTICLE VI
Additional Agreements
6.01. Preparation of Form S-4, Required AHC Documents
and the Proxy Statement; Stockholders'
Meeting............................................................65
6.02. Accountants' Letters.................................................67
6.03. Access to Information; Confidentiality...............................67
6.04. Reasonable Best Efforts..............................................69
6.05. Legal Conditions to Distribution
and Merger; Legal Compliance.......................................69
6.06. Options..............................................................71
6.07. Fees and Expenses....................................................72
6.08. Pre-Signing Transactions.............................................72
6.09. Public Announcements.................................................73
6.10. Affiliates...........................................................73
6.11. Stock Exchange Listing...............................................74
6.12. Tax Representation Letters...........................................74
6.13. Transfer Assumption Documentation....................................74
6.14. EDS Contract.........................................................74
ARTICLE VII
Conditions Precedent
7.01. Conditions to Each Party's
Obligation To Effect the Merger
(a) Stockholder Approval...........................................75
(b) NYSE Listing...................................................75
(c) HSR Act........................................................75
(d) Other Governmental Filings and Consents........................75
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(e) No Injunctions or Restraints...................................76
(f) Form S-4.......................................................76
(g) Required AHC Documents.........................................76
(h) Consummation of the Transactions...............................76
7.02. Conditions to Obligations of BMS and BMS Sub
(a) Representations and Warranties.................................76
(b) Performance of Obligations of Axion............................77
(c) No Material Adverse Change.....................................77
(d) Documents......................................................77
(e) Tax Opinion....................................................77
(f) No Litigation..................................................78
(g) Amendments to SEC Documents....................................78
(h) Third Party Consents...........................................78
(i) No Bankruptcy Proceedings......................................79
(j) Termination of Agreements......................................79
(k) Conversion of Axion Preferred Stock; No
Dissenters' Shares...........................................80
(l) Axion Options..................................................80
(m) Indebtedness...................................................80
(n) Opinion........................................................80
7.03. Conditions to Obligation of Axion
(a) Representations and Warranties.................................80
(b) Performance of Obligations of BMS
and BMS Sub..................................................81
(c) No Material Adverse Change.....................................81
(d) Documents......................................................81
(e) Tax Opinion....................................................81
(f) Amendment to SEC Documents.....................................82
(g) Opinion........................................................82
ARTICLE VIII
Termination, Amendment and Waiver
8.01. Termination..........................................................82
8.02. Effect of Termination................................................83
8.03. Amendment............................................................83
ARTICLE IX
General Provisions
9.01. Survival of Representations and Warranties...........................84
9.02. Notices..............................................................84
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9.03. Definitions..........................................................85
9.04. Interpretation.......................................................86
9.05. Counterparts.........................................................86
9.06. Entire Agreement; No
Third-Party Beneficiaries..........................................86
9.07. Governing Law........................................................86
9.08. Assignment...........................................................87
9.09. Captions.............................................................87
9.10. Severability.........................................................87
9.11. Schedules; Exhibits..................................................87
9.12. Enforcement; Consent to Jurisdiction.................................88
9.13. Waiver; Remedies.....................................................88
EXHIBITS
Exhibit A Distribution Agreement
Exhibit B Tax Matters Agreement
Exhibit C Indemnification Agreement
Exhibit D Escrow Agreement
Exhibit E Transitional Services Agreement
Exhibit F License Agreement
Exhibit G AHC and OnCare Supply Agreement
Exhibit H AHC and OnCare Medstation Agreement
Exhibit I Letter of Transmittal
Exhibit 3.01(a)(1) AHC Sub Undertaking
Exhibit 3.01(a)(2) Retained Company Undertaking
Exhibit 6.08(a)(1)-(6) Employment Agreements
Exhibit 6.08(a) Non-Competition Agreement
Exhibit 6.08(b) Stockholders Agreement
Exhibit 6.08(c) Amendment to Partnership Agreement
Exhibit 6.08(e) Opinion of Ernst & Young LLP
Exhibit 6.08(f) Letter of OnCare and Partnership
Exhibit 6.09 Press Release
Exhibit 6.10 Affiliates' Agreement
Exhibit 6.12(a) BMS Tax Representation Letter
Exhibit 6.12(b) Axion Tax Representation Letter
Exhibit 6.12(c) Stockholder Tax Representation
Letter
Exhibit 7.02(n) Opinion of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian,
LLP
Exhibit 7.03(g) Opinion of Cravath, Swaine & Moore
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7
SCHEDULES
Schedule 4.01(b) Subsidiaries
Schedule 4.01(c) Axion Stock Reserved for Issuance
Schedule 4.01(c)(i) Axion Preferred Stockholders
Schedule 4.01(c)(ii) Axion Common Stockholders
Schedule 4.01(c)(iii) Axion Option Holders
Schedule 4.01(d)(ii) Consents
Schedule 4.01(e)(i) Axion Financial Statements
Schedule 4.01(e)(ii) Retained Company Financial
Statements
Schedule 4.01(e)(iii) AHC Financial Statements
Schedule 4.01(g) Certain Changes or Events
Schedule 4.01(h) Benefit Plans
Schedule 4.01(i) Changes in Benefit Plans
Schedule 4.01(j) Taxes
Schedule 4.01(k) Excess Parachute Payments
Schedule 4.01(n)(i) Retained Assets
Schedule 4.01(n)(ii) Assets and Liabilities of OTNC
Schedule 4.01(n)(iii) Intercompany Balances
Schedule 4.01(o)(i) Compliance with Applicable Law
Schedule 4.01(o)(ii) Permits
Schedule 4.01(p) Retained Business
Schedule 4.01(q)(i) Intellectual Property (Axion)
Schedule 4.01(q)(ii) Intellectual Property (Retained
Company)
Schedule 4.01(r)(i) Axion Personal Property (Axion)
Schedule 4.01(r)(ii) Axion Personal Property (Retained
Company)
Schedule 4.01(s)(i) Real Property (Axion)
Schedule 4.01(s)(ii) Real Property (Retained Company)
Schedule 4.01(t) Litigation
Schedule 4.01(u) Employee and Labor Matters
Schedule 4.01(v)(i) Employment Agreements
Schedule 4.01(v)(ii) Labor Agreements
Schedule 4.01(v)(iii) Noncompete Agreements
Schedule 4.01(v)(iv) Contracts with Affiliates
Schedule 4.01(v)(v) Third Party Property Leases
Schedule 4.01(v)(vi) Third Party Personal Property Leases
Schedule 4.01(v)(vii) Continuing Contracts
Schedule 4.01(v)(viii) Intellectual Property Agreements
Schedule 4.01(v)(ix) Indebtedness
Schedule 4.01(v)(x) Guarantees
Schedule 4.01(v)(xi) Investment Agreements
Schedule 4.01(v)(xii) Liens and Encumbrances
Schedule 4.01(v)(xiii) Indemnification Agreements
Schedule 4.01(v)(xiv) Other Agreements
Schedule 4.01(w) Insurance
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8
Schedule 4.01(x) Liens on Accounts Receivable
Schedule 4.01(y)(i) Bank Accounts
Schedule 4.01(y)(ii) Banking Resolutions
Schedule 4.01(y)(iii) Power of Attorney
Schedule 4.01(z) Transactions with Affiliates
Schedule 4.01(cc) Suppliers
Schedule 4.01(dd) Customers
Schedule 5.01(b) Changes in Stock
Schedule 5.01(k) Affiliate Transactions
Schedule 5.01(m) Real Property Matters
Schedule 6.08(b) Axion Stockholders Party to the
Stockholders Agreement
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<PAGE>
AGREEMENT AND PLAN OF MERGER dated
as of August 2, 1996, among BRISTOL-
MYERS SQUIBB COMPANY, a Delaware
corporation ("BMS"), OTN Acquisition Sub
Inc., a Delaware corporation and a
wholly owned subsidiary of BMS ("BMS
Sub") and AXION INC., a Delaware
corporation ("Axion").
WHEREAS, the Board of Directors of Axion has approved an agreement and plan
of reorganization and distribution embodied in the form of Exhibit A (the
"Distribution Agreement") which will be entered into prior to the Effective Time
(as defined in Section 1.03) pursuant to which (a) immediately prior to the Time
of Contribution (as defined in the Distribution Agreement), Oncology
Therapeutics Network Joint Venture, L.P., a Delaware limited partnership ("OTN"
or the "Partnership"), will distribute to Oncology Therapeutics Network
Corporation, a Delaware corporation and a wholly owned subsidiary of Axion
("OTNC"), which will in turn distribute to Axion the Preference Amount (as
defined in the Distribution Agreement), (b) immediately prior to the Time of
Distribution (as defined in the Distribution Agreement), (i) OPUS Health Systems
Inc., a Delaware corporation and a wholly owned subsidiary of Axion ("OPUS"),
will contribute the OPUS Sub Assets (as defined in the Distribution Agreement)
to a newly formed, wholly owned subsidiary of OPUS ("OPUS Sub"), and OPUS Sub
will assume the OPUS Sub Liabilities (as defined in the Distribution Agreement),
(ii) OPUS will distribute the outstanding capital stock of OPUS Sub to Axion and
(iii) Axion will contribute all the Assets (as defined in the Distribution
Agreement) of Axion and its Subsidiaries (as defined in Section 9.03(e))
(including the outstanding capital stock of OPUS Sub) other than the OPUS Sub
Assets (which will remain Assets of OPUS Sub) and the Retained Assets (as
defined in the Distribution Agreement) to Axion HealthCare Inc., a Delaware
corporation and a wholly owned subsidiary of Axion ("AHC"), and AHC will assume
all the Liabilities (as defined in the Distribution Agreement) of Axion and its
Subsidiaries other than the OPUS Sub Liabilities (which will remain Liabilities
of OPUS Sub) and the Retained Liabilities (as defined in the Distribution
Agreement) (the transactions in clauses (i), (ii) and (iii), collectively, the
"Contributions") and (c) immediately following the Contributions and immediately
prior to the Effective Time, subject to the satisfaction or waiver of the
conditions set
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2
forth in Article VII of the Distribution Agreement, (i) each issued and
outstanding share of AHC Common Stock, par value $.001 per share ("AHC Common
Stock"), will be converted into a number of shares of AHC Series A Preferred
Stock, par value $.001 per share ("AHC Preferred Stock") as shall be equal to
the quotient of (A) the number of shares of Axion Common Stock, par value $.001
per share ("Axion Common Stock"), outstanding immediately prior to the Time of
Distribution (including any shares of Axion Common Stock issued in connection
with the conversion of Axion Preferred Stock (as defined in Section 4.01(c)) to
Axion Common Stock and the exercise of Axion Options (as defined in Section
6.06), in each case in connection with the consummation of the Merger) divided
by (B) the number of shares of AHC Common Stock outstanding immediately prior to
the Time of Distribution, and (ii) the Board of Directors of Axion will cause
Axion to distribute to the holders of Axion Common Stock on a pro rata basis all
the then outstanding shares of AHC Preferred Stock (the "Distribution");
WHEREAS, the respective Boards of Directors of BMS and Axion have
determined that, following the Distribution, the merger of BMS Sub with and into
Axion (the "Merger") with Axion as the surviving corporation (the "Surviving
Corporation") upon the terms and subject to the conditions set forth in this
Agreement would be advantageous and beneficial to their respective corporations
and stockholders; and
WHEREAS, for Federal income tax purposes, it is intended that (a) the
Distribution shall qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and (b) the Merger
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3
shall qualify as a reorganization within the meaning of Section 368(a)(1)(B) of
the Code, and this Agreement is intended to be and is adopted as a plan of
reorganization.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), BMS Sub shall be merged with and into Axion at the Effective
Time. Following the Merger, the separate corporate existence of BMS Sub shall
cease and Axion shall continue as the Surviving Corporation and shall continue
to hold all the rights and obligations of Axion in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which (subject to
satisfaction or waiver of the conditions set forth in Article VII) shall be no
later than the first business day after satisfaction of the conditions set forth
in Article VII (other than those that are waived by the party or parties for
whose benefit such conditions exist) (the "Closing Date"), at the offices of
Cravath, Swaine & Moore, Worldwide Plaza, 825 Eighth Avenue, New York, N.Y.
10019, unless another date or place is agreed to in writing by the parties
hereto.
SECTION 1.03. Effective Time. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VII, the parties
shall file a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
immediately following the Distribution upon the filing of the Certificate of
Merger with the Delaware Secretary of State, or at such other time as Axion and
BMS shall agree should be specified in the Certificate of Merger (the time the
Merger becomes effective being the "Effective Time").
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4
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges, powers and franchises of Axion shall vest in the Surviving
Corporation, and all debts, liabilities and obligations of Axion shall become
the debts, liabilities and obligations of the Surviving Corporation.
SECTION 1.05. Certificate of Incorporation and By-Laws. (a) The Certificate
of Incorporation of Axion shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The By-laws of Axion as in effect at the Effective Time shall be the
By-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Directors. The directors of BMS Sub at the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
SECTION 1.07. Officers. The officers of BMS Sub at the Effective Time shall
be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by virtue
of the Merger and without any further action on the part of the holder of any
shares of Axion Common Stock or any shares of capital stock of BMS Sub:
(a) Cancelation of Treasury Stock, Axion-Owned Stock and BMS-Owned Stock.
Each share of Axion Common Stock issued and outstanding immediately prior to the
Effective Time and owned by Axion or by any of its Subsidiaries owned
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5
by BMS or any wholly owned subsidiary of BMS or held in the treasury of Axion
shall automatically be canceled and retired and shall cease to exist, and no BMS
Common Stock (as defined in Section 2.01(b)) or other consideration shall be
delivered in exchange therefor.
(b) Conversion of Axion Common Stock. (i) Subject to Section 2.02(e), each
issued and outstanding share of Axion Common Stock (other than (A) shares to be
canceled in accordance with Section 2.01(a) and (B) as set forth in paragraph
(d) below, shares that have not been voted in favor of the approval and adoption
of this Agreement and with respect to which appraisal rights shall have been
perfected in accordance with Section 262 of the DGCL ("Dissenters' Shares"))
shall be converted into the right to receive a number of fully paid and
nonassessable shares of Common Stock, par value $.10 per share, of BMS together
with the associated rights pursuant to the Rights Agreement dated as of December
4, 1987, as amended on July 26, 1989, between BMS and The Chase Manhattan Bank,
as Rights Agent, (collectively, "BMS Common Stock") equal to the Conversion
Number (the "Merger Consideration"). The term "Conversion Number" shall mean a
number (rounded to the nearest thousandth or, if there shall not be a nearest
thousandth, rounded to the next higher thousandth), equal to the quotient of
(a)(i) $86,000,000 divided by (ii) the Average Value of BMS Common Stock divided
by (b) the number of shares of Axion Common Stock outstanding immediately prior
to the Effective Time (calculated on a fully diluted basis assuming all shares
of Axion Preferred Stock outstanding immediately prior to the Effective Time
have been converted into Axion Common Stock in accordance with the terms of such
Axion Preferred Stock and all Axion Options outstanding immediately prior to the
Effective Time have been exercised or canceled and in each case the related
subject shares of Axion Common Stock (other than any subject shares related to
any portion of any Axion Option that shall have been canceled and not exercised)
are outstanding). The term "Average Value of BMS Common Stock" means an amount
equal to the average of the per share closing prices of BMS Common Stock as
reported on the New York Stock Exchange Composite Transaction Tape (as published
in The Wall Street Journal, Eastern Edition, or, if not published therein, in
another authoritative source mutually selected by Axion and BMS) for the 10
consecutive full New York Stock Exchange ("NYSE") trading days ending on the
fifth full NYSE trading day immediately preceding the Effective Time; provided
that (A) if the Board of Directors of BMS declares a cash
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6
dividend on the outstanding shares of BMS Common Stock having a record date
after the Effective Time but an ex-dividend date (based on "regular way"
trading on the NYSE of shares of BMS Common Stock, the "Ex-Date") that occurs
during the averaging period, then for purposes of computing the Average Value of
BMS Common Stock, the closing price on the Ex-Date and any trading day in the
averaging period after the Ex-Date shall be adjusted by adding thereto the
amount of such dividend and (B) if the Board of Directors of BMS declares a cash
dividend on the outstanding shares of BMS Common Stock having a record date
before the Effective Time and an Ex-Date that occurs during the averaging
period, then for purposes of computing the Average Value of BMS Common Stock,
the closing price on any trading day before the Ex-Date will be adjusted by
subtracting therefrom the amount of such dividend. Notwithstanding anything to
the contrary contained herein, in the event that the Average Value of BMS Common
Stock on the Closing Date is less than $82.73 (the "Minimum Price"), then solely
for the purposes of calculating the Merger Consideration, the Average Value of
BMS Common Stock on the Closing Date shall be deemed to be the Minimum Price,
and in the event that the Average Value of BMS Common Stock on the Closing Date
is greater than $91.43 (the "Maximum Price"), then solely for the purposes of
calculating the Merger Consideration, the Average Value of BMS Common Stock on
the Closing Date shall be deemed to be the Maximum Price. If prior to the
Effective Time, the Board of Directors of BMS declares a stock split, stock
combination, stock dividend or other non-cash distribution on the outstanding
shares of BMS Common Stock, then the Minimum Price and Maximum Price (and if the
Ex-Date for such event occurs during the Averaging Period, the Average Value of
BMS Common Stock) will be appropriately adjusted to reflect such split,
combination, dividend or other distribution. As of the Effective Time, all such
shares of Axion Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Axion Common Stock shall cease
to have any rights with respect thereto, except the right to receive the shares
of BMS Common Stock and any cash in lieu of fractional shares of BMS Common
Stock to be issued or paid in consideration therefor upon surrender of such
certificate in accordance with Section 2.02, without interest.
(ii) The term "Axion Expenses" shall mean all out-of-pocket fees and
expenses incurred or to be incurred
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7
by or on behalf of Axion or any of its Subsidiaries in connection with the
Merger, the Distribution or the consummation of any of the transactions
contemplated by this Agreement and the Documents (as defined in Section 9.03(b))
and the negotiation, preparation, review and delivery of the agreements
contemplated hereby and thereby, including all Axion's expenses incurred or to
be incurred by Axion or any such Subsidiary in connection with printing and
mailing the Required AHC Documents (as defined in Section 4.01(d)) other than
the Proxy Statement (as defined in Section 4.01(d)) and, subject to the
provisions of Section 6.07, the Proxy Statement and the Form S-4 (as defined in
Section 4.01(f)) and all fees and expenses incurred or to be incurred by Axion
or any such Subsidiary of accountants, legal counsel, investment bankers and
other advisors. Axion shall cause third parties to submit to Axion not later
than five business days prior to Closing final bills for all Axion Expenses, and
Axion shall submit to BMS not later than five business days prior to Closing a
true and complete schedule of all Axion Expenses (the "Transaction Expense
Schedule"), together with a copy of all invoices or other supporting
documentation related thereto and a copy of all final bills issued for Axion
Expenses.
(c) Conversion of BMS Sub Common Stock. As of the Effective Time, by virtue
of the Merger, each issued and outstanding share of capital stock of BMS Sub
shall be converted into and become one fully paid and nonassessable share of
Common Stock, par value $.010 per share, of the Surviving Corporation.
(d) Shares of Dissenting Stockholders. Notwithstanding anything in this
Agreement to the contrary, no Dissenters' Shares shall be converted as described
in Section 2.01(b) but shall become the right to receive such consideration as
may be determined to be due in respect of such Dissenters' Shares pursuant to
the laws of the State of Delaware; provided, however, that any Dissenters'
Shares outstanding immediately prior to the Effective Time and held by a
stockholder who shall, after the Effective Time, lose his or her right of
appraisal, withdraw his or her demand for appraisal as a matter of right under
Section 262 of the DGCL, or, with the consent of BMS, otherwise withdraw his or
her demand for appraisal, in either case pursuant to the DGCL, shall be deemed
to be converted as of the Effective Time into the right to receive the Merger
Consideration. Axion shall give BMS prompt notice of any written demands for
appraisal of shares of Axion Common Stock received by
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8
Axion. Axion shall not, without the prior written consent of BMS, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands. Payments, if any, with respect to Dissenters' Shares shall not be
paid by BMS or with funds supplied by BMS.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, BMS shall deposit with Chemical Mellon Shareholders Services LLC
or a bank or trust company appointed by BMS (the "Exchange Agent"), for the
benefit of the holders of shares of Axion Common Stock, for exchange in
accordance with this Article II, through the Exchange Agent, certificates
representing the shares of BMS Common Stock (such shares of BMS Common Stock,
together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.01 in exchange for outstanding shares of Axion Common Stock. BMS shall provide
to the Exchange Agent, on a timely basis, funds necessary to pay any cash
payable in lieu of fractional shares of BMS Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, BMS shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time represented outstanding shares of Axion Common Stock (the "Certificates")
whose shares were converted into the right to receive shares of BMS Common Stock
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as BMS may reasonably specify
including the terms set forth in the letter of transmittal attached hereto as
Exhibit I (the "Letter of Transmittal")) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of BMS Common Stock. Upon surrender of a Certificate for
cancelation to the Exchange Agent or to such other agent or agents as may be
appointed by BMS, together with such Letter of Transmittal, duly executed, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of BMS Common Stock which
such holder has the right to receive pursuant to the provisions of this Article
II
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9
(which, for the avoidance of doubt, shall not include the number of shares of
BMS Common Stock that shall be deemed to have been deposited in escrow by such
holder in accordance with the provisions of Section 2.02(i)(e)), and the
Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of Axion Common Stock which is not registered in the
transfer records of Axion, a Certificate representing the proper number of
shares of BMS Common Stock may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if such Certificate
shall be properly endorsed or otherwise be in proper form for transfer and the
person requesting such payment shall pay any transfer or other taxes required by
reason of the issuance of shares of BMS Common Stock to a person other than the
registered holder of such Certificate or establish to the satisfaction of BMS
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of BMS Common Stock and cash in
lieu of any fractional shares of BMS Common Stock as contemplated by this
Section 2.02. No interest will be paid or will accrue on any cash payable in
lieu of any fractional shares of BMS Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to BMS Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of BMS Common Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.02(e) until the surrender of such Certificate in accordance with
this Article II. Subject to the effect of applicable laws, following surrender
of any such Certificate, there shall be paid to the holder of the Certificate
representing whole shares of BMS Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of BMS Common Stock to which such holder
is entitled pursuant to Section 2.02(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of BMS Common Stock, less the amount of any
withholding taxes which may be required thereon and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such
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10
surrender and a payment date subsequent to such surrender payable with respect
to such whole shares of BMS Common Stock, less the amount of any withholding
taxes which may be required thereon.
(d) No Further Ownership Rights in Axion Common Stock. All shares of BMS
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to Section 2.02(c) or 2.02(e)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the shares of Axion Common Stock
theretofore represented by such Certificates, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Axion Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
II.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of BMS Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of BMS.
(ii) Notwithstanding any other provision of this Agreement, each holder of
shares of Axion Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of BMS Common
Stock (after taking into account all Certificates registered to such holder)
shall receive, in lieu thereof, cash (without interest) in an amount, less the
amount of any withholding taxes which may be required thereon, equal to such
fractional part of a share of BMS Common Stock multiplied by the per share
closing price of BMS Common Stock as reported on the New York Stock Exchange
Composite Transaction Tape (as published in The Wall Street Journal, Eastern
Edition, or, if not published therein, in another authoritative source mutually
selected by Axion and BMS) on the full NYSE trading day immediately preceding
the Closing Date.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time
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11
shall be delivered to BMS, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article II shall thereafter look only to
BMS for payment of their claim for BMS Common Stock, any cash in lieu of
fractional shares of BMS Common Stock and any dividends or distributions with
respect to BMS Common Stock.
(g) No Liability. In the event that any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Surviving Corporation shall, in exchange for such lost, stolen or destroyed
Certificate, issue or cause to be issued the number of shares of BMS Common
Stock and pay or cause to be paid the amounts deliverable in respect thereof
pursuant to this Article II.
(h) Withholding Rights. The Surviving Corporation shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Axion Common Stock such amounts as may be required to
be deducted and withheld with respect to the making of such payment under the
Code, or under any provision of state, local or foreign tax law. To the extent
that amounts are so withheld and paid over to the appropriate taxing authority,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of Axion Common Stock in respect of which such
deduction and withholding was made.
(i) Indemnification Matters; Appointment of AHC as Representative; Escrow.
At the Closing:
(a) The stockholders of Axion immediately prior to the Effective Time (the
"Former Axion Stockholders") each shall become a party to the Indemnification
Agreement (as defined in Section 3.01), the Tax Matters Agreement (as defined in
Section 3.01) and the Escrow Agreement.
(b) By execution of the Letter of Transmittal, which execution may occur
subsequent to the Closing, each Former Axion Stockholder shall irrevocably
appoint AHC, and AHC shall have accepted such appointment, as such person's true
and lawful agent and attorney-in-fact to enter into the
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12
Indemnification Agreement, the Tax Matters Agreement and the Escrow Agreement on
behalf of such person and with respect to all the other matters set forth in the
Letter of Transmittal.
(c) The Exchange Agent, on behalf of the Former Axion Stockholders, shall
deposit into escrow, in accordance with the terms of the Escrow Agreement, a
number of shares of BMS Common Stock equal to $5,000,000 divided by the Average
Value of BMS Common Stock, rounded to the nearest whole share, which amount
shall be deemed to have been deposited by the Former Axion Stockholders on a pro
rata basis from the shares of BMS Common Stock to be issued and delivered to
each Former Axion Stockholder with respect to its shares of Axion Common Stock
pursuant to Section 2.02(b), calculated based on the ratio of the number of
shares of BMS Common Stock to be so issued and delivered to such Former Axion
Stockholder with respect to its shares of Axion Common Stock to the aggregate
number of shares of BMS Common Stock to be so issued to all the Former Axion
Stockholders with respect to their shares of Axion Common Stock.
(d) AHC shall deposit, or cause to be deposited, into escrow, in accordance
with the terms of the Escrow Agreement, $5,000,000 in cash.
SECTION 2.03. Payment of Axion Expenses. At the Closing, BMS shall provide,
or cause to be provided, to Axion funds in an amount equal to the lesser of
$2,000,000 and the aggregate amount of Axion Expenses listed in the Transaction
Expense Schedule, and Axion shall pay the Axion Expenses listed in the
Transaction Expense Schedule.
ARTICLE III
Certain Pre-Merger Transactions
SECTION 3.01. Ancillary Agreements. (a) Prior to the Time of Distribution
(as defined in the Distribution Agreement), Axion shall:
(i) execute and deliver the Distribution Agreement, a tax matters
agreement substantially in the form of Exhibit B (the "Tax Matters
Agreement"), a post-closing covenants and indemnification agreement
substantially in the form of Exhibit C (the
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13
"Indemnification Agreement"), the Escrow Agreement, a transitional
services agreement substantially in the form of Exhibit E (the
"Transitional Services Agreement") and a license agreement substantially
in the form of Exhibit F (the "License Agreement");
(ii) cause AHC to execute and deliver the Distribution Agreement, the
Indemnification Agreement, the Transitional Services Agreement, the AHC
Supply Agreement (as defined below), the AHC Medstation Agreement (as
defined below), the Tax Matters Agreement, the Escrow Agreement and the
License Agreement;
(iii) cause each of OTNC, OPUS, OTN and OPUS Sub to execute and
deliver the Distribution Agreement, the Indemnification Agreement, the
Escrow Agreement and the Tax Matters Agreement;
(iv) cause OPUS to execute and deliver each of the AHC Supply
Agreement and the OnCare Supply Agreement, each substantially in the form
of Exhibit G (respectively, the "AHC Supply Agreement" and the "OnCare
Supply Agreement");
(v) cause the Supply Agreement dated January 1, 1996 between the
Partnership and OnCare Inc. ("OnCare") to be terminated;
(vi) cause the Partnership to execute and deliver each of the AHC
Medstation Agreement and the OnCare Medstation Agreement, each
substantially in the form of Exhibit H (respectively, the "AHC Medstation
Agreement" and the "OnCare Medstation Agreement");
(vii) cause each of the AHC Companies (other than AHC) to have
irrevocably appointed AHC, and AHC to have accepted such appointment, as
such person's representative with respect to the Indemnification Agreement,
the Escrow Agreement and the Tax Matters Agreement pursuant to a form of
undertaking substantially in the form of Exhibit 3.01(a)(1);
(viii) and shall cause each of the Retained Subsidiaries to have
irrevocably appointed BMS as such person's representative with respect to
the Indemnification Agreement, the Escrow Agreement and the Tax Matters
Agreement pursuant to a form of undertaking
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14
substantially in the form of Exhibit 3.01(a)(2) (the "Retained Company
Undertaking").
(b) Prior to the Time of Distribution, BMS shall (i) execute and deliver
the Tax Matters Agreement, the Indemnification Agreement and the Escrow
Agreement, (ii) cause BMS Sub to execute and deliver the Tax Matters Agreement,
the Indemnification Agreement and the Escrow Agreement and (iii) have accepted
the appointment as the Retained Companies' representative with respect to the
Indemnification Agreement, the Escrow Agreement and the Tax Matters Agreement
pursuant to the Retained Company Undertaking.
(c) Prior to the Time of Distribution, OnCare shall execute the OnCare
Supply Agreement and the OnCare Medstation Agreement.
SECTION 3.02. Formation of OPUS Sub. Prior to the Time of Contribution,
Axion shall cause OPUS Sub to be duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, and Axion shall not permit,
prior to the Effective Time, OPUS Sub to engage in any other business activities
or to conduct its operations other than as contemplated by the Distribution
Agreement. The certificate of incorporation and by-laws for OPUS Sub shall be
reasonably acceptable in form and substance to BMS and its counsel.
SECTION 3.03. Related Transactions. Axion shall cause all the transactions
set forth in Articles III and IV of the Distribution Agreement to occur, subject
in the case of Article IV to satisfaction of the terms and conditions set forth
in the Distribution Agreement.
ARTICLE IV
Representations and Warranties
SECTION 4.01. Representations and Warranties of Axion. Axion represents and
warrants to BMS as follows:
(a) Organization, Standing and Corporate Power. As used in this Agreement
(i) any reference to Axion and its Subsidiaries means Axion, each of its
Subsidiaries (including the AHC Companies (as defined below)) and the
Partnership, (ii) any reference to the "Retained Company"
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15
and its Subsidiaries or the Surviving Corporation and its Subsidiaries or the
"Retained Companies" means Axion and those entities that will be direct or
indirect Subsidiaries of Axion immediately after giving effect to the
transactions set forth in the Distribution Agreement, (iii) references to
"Retained Subsidiaries" means those entities that will be direct or indirect
Subsidiaries of Axion immediately after giving effect to the transactions set
forth in the Distribution Agreement, (iv) any reference to AHC and its
Subsidiaries or the "AHC Companies" means AHC and those entities that will be
direct or indirect Subsidiaries of AHC immediately after giving effect to the
transactions set forth in the Distribution Agreement and (v) any reference to
OnCare and its Subsidiaries means OnCare and each of its Subsidiaries. As used
in this Agreement, any reference to any event, change, circumstance or
development having a material adverse effect on or with respect to Axion and its
Subsidiaries taken as a whole (an "Axion Material Adverse Effect") means such
event, change, circumstance or development is materially adverse to the
business, operations, assets, liabilities (including contingent liabilities),
results of operations, financial condition or prospects of such group of
entities taken as a whole, or on the ability of such group of entities taken as
a whole to consummate the transactions contemplated hereby or by the Documents,
including the Contributions, the Distribution and the Merger, or to perform its
obligations under this Agreement or any other Document to which it is or will be
a party; provided that an Axion Material Adverse Effect shall not include any
changes to the Retained Business (as defined in the Distribution Agreement)
occurring directly as a result of the pendency, announcement or consummation of
the Merger. As used in this Agreement, any reference to any event, change,
circumstance or development having a material adverse effect on or with respect
to the Retained Company and its Subsidiaries taken as a whole (a "Retained
Company Material Adverse Effect") means such event, change, circumstance or
development is materially adverse to the business, operation, assets,
liabilities (including contingent liabilities), results of operations, financial
condition or prospects of such group of entities taken as a whole, or on the
ability of such group of entities taken as a whole to consummate the
transactions contemplated hereby or by any other Document, including the
Contributions, the Distribution and the Merger, or to perform its obligations
under this Agreement or any other Document to which it is or will be a party;
provided that a Retained Company Material Adverse Effect shall not include any
changes to the Retained
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16
Business occurring directly as a result of the pendency, announcement or
consummation of the Merger. As used in this Agreement, any reference to any
event, change, circumstance or development having a material adverse effect on
or with respect to AHC and its Subsidiaries taken as a whole (an "AHC Material
Adverse Effect") means such event, change, circumstance or development is
materially adverse to the business, operations, assets, liabilities (including
contingent liabilities), results of operations, financial condition or prospects
of such group of entities taken as a whole, or on the ability of such group of
entities taken as a whole to consummate the transactions contemplated hereby or
by any other Document, including the Contributions, the Distribution and the
Merger, or to perform its obligations under this Agreement or any other Document
to which it is or will be a party; provided that the fact that the business of
AHC and its Subsidiaries as currently conducted and as proposed to be conducted
immediately following the Effective Time is operating and is projected to
operate on a loss basis to the extent previously disclosed to BMS in writing
shall not be deemed to constitute an AHC Material Adverse Effect.
Each of Axion and AHC is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware. Each Subsidiary of
the Retained Company and AHC is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation as
set forth in Schedule 4.01(b). Each of the Retained Company and its Subsidiaries
and each of AHC and its Subsidiaries is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the properties owned, leased
or operated, or the business conducted, by it require such qualification, except
for any such failure so to qualify or be in good standing which, when taken
together with all other such failures, does not have, and could not be
reasonably expected to have, a Retained Company Material Adverse Effect or an
AHC Material Adverse Effect. Each of the Retained Company and its Subsidiaries
and each of AHC and its Subsidiaries has the requisite corporate power and
authority to carry on its businesses as they are now being conducted and as
proposed to be conducted immediately following the Effective Time. Axion has
delivered to BMS complete and correct copies of its Certificate of Incorporation
and By-laws of Axion and the certificates of incorporation and by-laws, or
comparable charter or organizational documents, of each Subsidiary of the
Retained
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17
Company and of AHC and its Subsidiaries, in each case as amended to the date of
this Agreement and in full force and effect. Axion has made available to legal
counsel for BMS complete and correct copies of the minute books of Axion and its
Subsidiaries as maintained by Axion or such Subsidiary, as the case may be, as
of the date hereof for the period from April 26, 1988 to and including the date
hereof, and such minute books contain minutes of all meetings of and actions
taken by (including descriptions of all material actions taken at such meetings)
the boards of directors and the stockholders of Axion or the applicable
Subsidiary during such period.
(b) Subsidiaries. Schedule 4.01(b) sets forth each Subsidiary of Axion
(including each Subsidiary of the Retained Company and each Subsidiary of AHC),
together with the jurisdiction of incorporation of each such Subsidiary, the
outstanding capital stock of each such Subsidiary, the record owner of all such
shares of capital stock and a statement whether following the Distribution such
Subsidiary will be a Subsidiary of the Retained Company or of AHC. All the
outstanding shares of capital stock of each such Subsidiary have been validly
issued and are fully paid and nonassessable and are owned by Axion (or,
following the Time of Distribution (as such term is defined in the Distribution
Agreement), in the case of AHC, by the Former Axion Stockholders, and, in the
case of OPUS Sub, by AHC), free and clear of all adverse claims, restrictions on
voting or transfer (other than such restrictions on the transfer of shares of
AHC Preferred Stock as may be imposed as set forth in the No-Action Request (as
defined in Section 6.03(e)), pledges, claims, liens, charges, encumbrances and
security interests or other restrictions of any kind or nature whatsoever
(collectively, "Liens"). There are no securities convertible into or
exchangeable for, or any options, warrants, calls, subscriptions or other rights
(preemptive or otherwise) to acquire, any shares of capital stock of any of such
Subsidiaries or any agreements or contractual commitments other than this
Agreement and the Distribution Agreement obligating Axion, or restricting
Axion's rights, to transfer, sell or vote, the capital stock of any of such
Subsidiaries owned by it, directly or indirectly. Except as set forth in
Schedule 4.01(b), neither Axion nor any of its Subsidiaries owns, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity or have any agreement, understanding,
contract or commitment relating to an interest in any corporation, partnership,
joint venture or
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18
other entity or Axion's or such Subsidiary's investment
therein.
(c) Capital Structure. The authorized capital stock of Axion consists of
15,000,000 shares of Axion Common Stock and 10,000,000 shares of preferred
stock, par value $.001 per share, of Axion (the "Axion Preferred Stock"). At the
close of business on the business day immediately preceding the date of this
Agreement, (i) 1,606,651 shares of Axion Common Stock, 3,135,000 shares of
Series A Axion Preferred Stock, 882,353 shares of Series B Axion Preferred
Stock, 420,000 shares of Series C Axion Preferred Stock, 700,000 shares of
Series D Axion Preferred Stock, 965,517 shares of Series E Axion Preferred Stock
and 638,020 shares of Series F Axion Preferred Stock, were issued and
outstanding and (ii) no shares of Axion Common Stock were held by Axion in its
treasury. Schedule 4.01(c) sets forth a list of the record holders of all issued
and outstanding shares of Axion Common Stock and Axion Preferred Stock as of the
date hereof. Except as set forth in Schedule 4.01(c), at the close of business
on the business day immediately preceding the date of this Agreement, (i) no
shares of Axion Common Stock were reserved for issuance, other than (A)
6,740,890 shares of Axion Common Stock reserved for issuance upon conversion of
Axion Preferred Stock and (B) 2,600,000 shares of Axion Common Stock reserved
for issuance pursuant to the Stock Option and Restricted Stock Plan of Axion and
the Executive Stock Option Plan of Axion and (ii) no shares of Axion Preferred
Stock were reserved for issuance. All of the outstanding shares of Axion Common
Stock and Axion Preferred Stock have been, and all shares of Axion Common Stock
which may be issued pursuant to the terms of any Axion Preferred Stock or any
Axion Options will be, when issued, duly authorized and validly issued, and are
or will be, when issued, fully paid and nonassessable. There are no bonds,
debentures, notes or other obligations of Axion or any of its Subsidiaries
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of Axion or such
Subsidiary, as the case may be, may vote. Except as set forth in Schedule
4.01(c) and except as provided for in this Agreement and the Distribution
Agreement, there are not, and immediately prior to the Effective Time there will
not be, any preemptive rights or any outstanding subscriptions, options, puts,
calls, warrants, rights, convertible or exchangeable securities or other
agreements or commitments of Axion or any of its Subsidiaries or by which any of
them is bound
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19
obligating Axion or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, additional shares of capital stock or other
voting securities of Axion or any of its Subsidiaries or obligating Axion or any
of its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or undertaking.
Except as set forth in Schedule 4.01(c) and except as provided in this Agreement
and as expressly set forth in the Distribution Agreement, there are no
outstanding contractual obligations of Axion or any of its Subsidiaries to
issue, sell, purchase, redeem, convert, exchange, register, vote or transfer any
shares of capital stock of Axion or any of its Subsidiaries.
(d) Authority; Noncontravention. (i) Axion and each of its Subsidiaries has
the requisite corporate power and authority to execute and deliver each Document
to which it is or will be a party and to consummate the transactions
contemplated hereby and thereby (other than, with respect to the Merger, (A) the
election by the holders of not less than 66-2/3% of the outstanding shares of
Axion Preferred Stock voting together as a class to convert all outstanding
shares of Axion Preferred Stock into Axion Common Stock in accordance with the
Certificate of Incorporation of Axion, (B) the approval and adoption of this
Agreement by the affirmative vote of the holders of Axion Common Stock entitled
to be cast of at least a majority of the total number of votes entitled to be
cast voting together as a single class (the "Requisite Common Stockholders"),
(C) the approval and adoption of this Agreement by the affirmative vote of the
holders of Axion Preferred Stock entitled to be cast of at least a majority of
the total number of votes entitled to be cast (excluding from such vote the
shares of any series of Preferred Stock of which there are fewer than 100,000
shares outstanding) voting together as a single class, the "Requisite Preferred
Stockholders") and (D) formal declaration of the Distribution by the Board of
Directors of Axion (which will be obtained prior to the Distribution). The
execution, delivery and performance of each Document to which it is or will be a
party and the consummation by Axion of the Contributions, the Distribution and
the Merger and the other transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of Axion, and no other corporate
proceedings on the part of Axion are required by applicable law or necessary to
authorize any Document or for Axion to consummate the transactions so
contemplated (other than as
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20
set forth in the preceding sentence). The election by the holders of not less
than 66-2/3% of the outstanding shares of Axion Preferred Stock voting together
as a class to convert all outstanding shares of Axion Preferred Stock into Axion
Common Stock in accordance with the Certificate of Incorporation of Axion and
the affirmative vote of the Requisite Preferred Stockholders voting as a single
class and the Requisite Common Stockholders voting as a single class approving
and adopting this Agreement are the only votes of the holders of any class or
series of Axion's capital stock required by applicable law or necessary to
approve and adopt the Contributions, the Distribution, the Merger, this
Agreement or the other Documents and the transactions contemplated hereby and
thereby. The execution, delivery and performance by the Subsidiaries of Axion of
each Document to which it is or will be a party and the consummation of the
transactions contemplated hereby and thereby will be duly authorized by such
entity's board of directors, and no other corporate proceedings on the part of
such entity will be required by applicable law or necessary to authorize each
Document to which it is or will be a party or to consummate the transactions so
contemplated. Each Document to which Axion or any of its Subsidiaries is or will
be a party has been or will be duly executed and delivered by such entity, and
constitutes, or upon such execution and delivery will constitute, a valid and
binding obligation of such entity, enforceable against it in accordance with its
terms.
(ii) None of the execution, delivery or performance by Axion and its
Subsidiaries of any Document to which Axion or its Subsidiaries is or will be a
party, the consummation of the transactions contemplated hereby and thereby or
the compliance by Axion and its Subsidiaries with the terms of each Document to
which Axion or any of its Subsidiaries is or will be a party will conflict with,
or result in any violation or breach of, or default (with or without notice or
lapse of time, or both) under, or give rise to any right of termination,
amendment, cancelation or acceleration of any obligation or to loss of a benefit
under, or result in the creation of any Lien upon any of the properties or
assets of Axion or any of its Subsidiaries (i) under the Certificate of
Incorporation or By-laws or comparable charter or organizational documents of
Axion or any of its Subsidiaries, (ii) any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement, franchise, permit, concession or other instrument, obligation,
understanding, commitment
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21
or other arrangement (including oral and informal arrangements) (a "Contract")
to which Axion or any of its Subsidiaries is a party or by which Axion or any of
its Subsidiaries or any of their properties or assets are bound or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Axion or any of its Subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) or (iii), any such
conflicts, violations, defaults, rights, losses or Liens that individually or in
the aggregate would not, and could not be reasonably expected to, have a
Retained Company Material Adverse Effect or an AHC Material Adverse Effect. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to Axion or
any of its Subsidiaries in connection with the execution, delivery or
performance by Axion or any of its Subsidiaries of each Document to which any of
them is or will be a party or the consummation by Axion or such Subsidiary, as
the case may be, of the transactions contemplated hereby or thereby or the
compliance by Axion or any of its Subsidiaries with the terms of each Document
to which any of them is or will be a party, except for (i) the filing of a
premerger notification and report form by Axion under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), (ii) the filing with the
Securities and Exchange Commission (the "SEC") or any state securities
commission or the delivery to the stockholders of Axion or, following the
Distribution, AHC, of (x) the Required AHC Documents in connection with the
distribution of shares of AHC Preferred Stock in connection with the
transactions contemplated by the Distribution Agreement and (y) a proxy
statement relating to the approval and adoption by Axion's stockholders of this
Agreement (as amended or supplemented from time to time, the "Proxy Statement"),
(iii) filing the Certificate of Merger with the Delaware Secretary of State and
appropriate documents with the relevant authorities of other states in which
Axion or any of its Subsidiaries is qualified to do business and (iv) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings which the failure to receive, individually or in the aggregate, would
not, and could not be reasonably expected to, have a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect. "Required
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AHC Documents" means (x)(i) in the event the No-Action Request is granted by the
SEC, an Information Statement substantially complying with the requirements of
Schedule 14C under the Securities Exchange Act of 1934, as amended (together
with the rules and regulations thereunder, the "Exchange Act") (the "Information
Statement") or (ii) in the event the No-Action Request is not granted by the
SEC, (A) a registration statement on Form S-1 (the "Form S-1") or (B) an
application for a permit encompassing the distribution AHC Preferred Stock and,
if necessary, the issuance of BMS Common Stock, containing such information and
accompanied by such documents as required by rule of the California Commissioner
of Corporations (the "Commissioner") in addition to the information specified by
the California Corporations Code in order for the Commissioner to approve the
terms and conditions of such issuance and the fairness of such terms and
conditions (the "Application") pursuant to Part 2 of the California Corporate
Securities Law of 1968 (the "California Corporations Code") and (y) any other
document filed with the SEC or any state securities commission or otherwise
required to be provided or delivered to the stockholders of Axion or, following
the Distribution, AHC, in connection with the transactions contemplated by the
Distribution Agreement.
(e) Financial Statements; Undisclosed Liabilities. (i) Axion. Schedule
4.01(e)(i) sets forth (A) the audited consolidated balance sheets of Axion and
its Subsidiaries as of December 31, 1994 and 1995 and the related audited
consolidated statements of operations, stockholders' equity and cash flows of
Axion and its Subsidiaries as of December 31, 1993, 1994 and 1995, together with
the notes to such financial statements (collectively, the "Audited Axion
Financial Statements"), in each case audited by Ernst & Young LLP, and (B) the
unaudited consolidated balance sheet of Axion and its Subsidiaries as of March
31, 1996, and the related unaudited consolidated statements of operations and
retained earnings and cash flows of Axion and its Subsidiaries for the
three-month period then ended, together with the notes to such financial
statements (collectively, the "Unaudited Axion Financial Statements", together
with the Audited Axion Financial Statements, the "Axion Financial Statements"),
certified by the chief financial officer of Axion as set forth in the next
sentence. The Axion Financial Statements comply as to form in all material
respects with applicable accounting requirements, have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the
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23
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Axion and its Subsidiaries as of
the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended (subject, in the case of
unaudited statements, to normal, recurring year-end audit adjustments). Except
(A) as disclosed, reflected or reserved against in the Axion Financial
Statements, (B) as disclosed in Schedule 4.01(e)(i) and (C) for liabilities and
obligations incurred since March 31, 1996, in the ordinary course of business
consistent with past practice and not in violation of this Agreement, neither
Axion nor any of its Subsidiaries has any liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) which, individually
or in the aggregate, exceed $100,000.
(ii) The Retained Company. (A) The consolidated balance sheets of the
Retained Company and its Subsidiaries as of December 31, 1994 and 1995 and the
related audited consolidated statements of operations for the years ended
December 31, 1993, 1994 and 1995, as set forth in Note 11 to the Audited Axion
Financial Statements, and (B) The consolidated balance sheet of the Retained
Company and its Subsidiaries as of March 31, 1996 and the related unaudited
consolidated statement of operations for the three months ended March 31, 1996
as set forth in Note 3 to the Unaudited Financial Statements, in each case
certified by the chief financial officer of Axion as set forth in the next
sentence are hereinafter referred to as the "Retained Company Financial
Statements". The Retained Company Financial Statements comply as to form in all
material respects with applicable accounting requirements, have been prepared in
accordance with GAAP applied on a consistent basis during the period involved
(except for the absence of notes thereto) and fairly present the consolidated
financial position of the Retained Company and its Subsidiaries as of the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended (subject to normal, recurring
year-end audit adjustments). Except (A) as disclosed, reflected or reserved
against in the Retained Company Financial Statements, (B) as disclosed in
Schedule 4.01(e)(ii) and (C) for liabilities and obligations incurred since
March 31, 1996, in the ordinary course of business consistent with past practice
and not in violation of this Agreement, neither the Retained Company nor any of
its Subsidiaries has any liabilities or obligations of any nature (whether
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24
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, exceed $100,000.
(iii) AHC. Schedule 4.01(e)(iii) sets forth (A) the audited combined
balance sheet of AHC and its Subsidiaries as of December 31, 1995 and the
related combined statements of operations and accumulated deficit and net
capital deficiency and cash flows for the year ended December 31, 1995, together
with the notes to such financial statements, in each case audited by Ernest &
Young LLP, and (B) the unaudited combined balance sheet of AHC and its
Subsidiaries as of March 31, 1996 and the related unaudited consolidated
statements of operations and accumulated deficit and net capital deficiency and
cash flows for the three months ended March 31, 1995 and 1996, together with the
notes to such financial statements, in each case certified by the chief
financial officer of Axion as set forth in the next sentence (the financial
statements described in clauses (A) and (B) above, together with the notes to
such financial statements, the "AHC Financial Statements"). The AHC Financial
Statements comply as to form in all material respects with applicable accounting
requirements, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of AHC and its
Subsidiaries as of the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended (subject
to normal, recurring year-end audit adjustments). Except (A) as disclosed,
reflected or reserved against in AHC Financial Statements, (B) disclosed in
Schedule 4.01(e)(iii) and (C) except for liabilities and obligations incurred
since March 31, 1996, in the ordinary course of business consistent with past
practice and not in violation of this Agreement, neither AHC nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) which, individually or in the aggregate,
exceed $100,000.
(f) Information Supplied. None of the information supplied or to be
supplied by Axion or its representatives for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by BMS in connection with the issuance of BMS Common Stock in the Merger (the
"Form S-4") or the Form S-1, if required for the Distribution, will, at the time
such registration statements become effective under the
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25
Securities Act of 1933 (together with the rules and regulations thereunder, the
"Securities Act") or at the Effective Time, in the case of the Form S-4, or at
the time of the Stockholders' Meeting (as defined in Section 6.01(b)) to be held
in connection with the Merger or at the time of the Distribution, in the case of
the Form S-1, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) the Proxy Statement and the Information
Statement will, at the date first mailed to Axion's stockholders or at the time
of the Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading; (iii) the Application, if required for the
Distribution, will, at the time filed with the Commissioner or at the time of
the Stockholders' Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein on necessary to
make the statements therein not misleading; and (iv) the other Required AHC
Documents or any other document filed or required to be filed with the SEC or
any state securities commission or otherwise provided, or required to be
delivered, to the Axion stockholders or, following the Distribution, the AHC
stockholders, in connection with the transactions contemplated by this Agreement
or the other Documents, any preliminary or final form thereof or any amendment
or supplement thereto will, at the date first mailed to Axion's stockholders or
at the time of the Stockholders' Meeting, as applicable, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
and any proxy materials sent to stockholders of Axion or AHC will comply in all
material respects with the substantive requirements of Schedule 14A under the
Exchange Act and will comply as to form in all material respects with the
requirements of Schedule 14A under the Exchange Act and the rules and
regulations thereunder; the Information Statement, if required for the
Distribution, will substantially comply with the requirements of Schedule 14C
under the Exchange Act, as applicable, and the rules and regulations thereunder;
the Form S-1, if required for the Distribution, will comply as to form in all
material respects with the requirements of the Securities Act and the rules and
regulations thereunder;
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26
and the other Required AHC Documents (other than the Application), if any, will
comply as to form in all material respects with the applicable provisions of the
Securities Act, the Exchange Act, the California Corporations Code or any other
applicable state or Federal laws, and the rules and regulations thereunder,
except that no representation is made by Axion with respect to statements made
therein based on information supplied by BMS or its representatives for
inclusion in the Proxy Statement or the other Required AHC Documents,
respectively, or with respect to information concerning BMS or any of its
Subsidiaries incorporated by reference in the Proxy Statement.
(g) Absence of Certain Changes or Events. Since December 31, 1995, no
event, change, circumstance or development has occurred that has had, or could
reasonably be expected to have, an Axion Material Adverse Effect, a Retained
Company Material Adverse Effect or an AHC Material Adverse Effect. Except as set
forth in Schedule 4.01(g) and except for the execution and delivery of the
Documents and consummation of the transactions contemplated thereby, since
December 31, 1995, Axion has caused the business of Axion and its Subsidiaries
to be conducted in the ordinary course and in substantially the same manner as
previously conducted (except that the capital stock of OnCare was distributed on
December 31, 1995 to the stockholders of Axion and, accordingly, OnCare is no
longer a Subsidiary of Axion) and has made all reasonable best efforts to
preserve Axion's and its Subsidiaries' relationships with customers, suppliers,
licensors, licensees, distributors and others with whom Axion or any Subsidiary
deals. Except as set forth in Schedule 4.01(g), since December 31, 1995, to the
date of this Agreement, neither Axion nor any of its Subsidiaries has taken any
action that, if taken after the date hereof, would constitute a breach of any of
the covenants set forth in Section 5.01 or 5.02.
(h) Benefit Plans, Employment and Labor Relations. (i) Schedule 4.01(h)
contains a list (and with respect to any Benefit Plans (as defined below) that
are not in written form, a brief description) of all "employee pension benefit
plans" (as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of ERISA)
and all other plans, agreements, policies or arrangements relating to stock
options, stock purchases, compensation, deferred compensation, severance,
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27
and other employee benefits, in each case maintained or contributed to as of the
date of this Agreement by Axion or any of its Subsidiaries or any other person
or entity that, together with Axion, is treated as a single employer under
Section 414(b), (c), (m) or (o) of the Code (a "Commonly Controlled Entity") for
the benefit of any current or former employees, officers or directors of Axion
or any Commonly Controlled Entity (collectively, the "Benefit Plans"). Axion has
delivered to BMS true, complete and correct copies of (w) each Benefit Plan (or,
in the case of any unwritten Benefit Plans, descriptions thereof), (x) the two
most recent annual reports on Form 5500 filed with the Internal Revenue Service
("IRS") with respect to each Benefit Plan (if any such report was required),
including all schedules and attachments thereto, (y) the most recent summary
plan description for each Benefit Plan for which such summary plan description
is required and (z) each trust agreement, group annuity contract and other
funding or financing arrangement relating to any Benefit Plan. To the knowledge
of Axion, each such Form 5500 and each such summary plan description (or similar
document) was and is as of the date hereof true, complete and correct in all
material respects.
(ii) Each Benefit Plan has been administered in all material respects in
accordance with its terms. Axion and its Commonly Controlled Entities and all
the Benefit Plans are in compliance in all material respects with the applicable
provisions of ERISA, the Code, all other applicable laws and the terms of all
applicable collective bargaining agreements. All reports, returns and similar
documents with respect to the Benefit Plans required to be filed with any
governmental agency or distributed to any Benefit Plan participant have been
duly and timely filed or distributed and, to the knowledge of Axion, all
reports, returns and similar documents actually filed or distributed were true,
complete and correct in all material respects. There are no investigations by
any governmental agency, termination proceedings or other claims (except routine
claims for benefits payable under the Benefit Plans), suits or proceedings
against or involving any Benefit Plan or asserting any rights of or claims for
benefits under any Benefit Plan that could give rise to any material liability,
and there are not any facts or circumstances that could give rise to any
material liability in the event of any such investigation, claim, suit or
proceeding.
(iii) The Datair Mass-Submitter Prototype Defined Contribution Plan and
Trust and related Adoption Agreement
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28
comprising the Axion Pharmaceuticals, Inc. 401(k) Profit Sharing Plan and Trust
is the subject of a valid opinion letter from the IRS with respect to
conformance with Sections 401 and 501(a) of the Code, and Axion has adopted all
amendments and is in compliance with all applicable requirements in order to
rely on such opinion letter for purposes of maintaining a defined contribution
plan qualified under Section 401 and 501(a) of the Code.
(iv) All contributions to, and payments from, the Benefit Plans and all
insurance premiums that may have been required to be made in accordance with the
terms of the Benefit Plans and any applicable collective bargaining agreement
have been timely made. Neither Axion nor any Commonly Controlled Entity
sponsors, maintains or contributes to (or has ever sponsored, maintained or
contributed to) a Pension Plan subject to Title IV of ERISA or Section 412 of
the Code. None of Axion, any of its Subsidiaries, any officer of Axion or any of
its Subsidiaries or any of the Benefit Plans which are subject to ERISA,
including the Pension Plans, any trusts created thereunder or, to the knowledge
of Axion, any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) or any other breach of fiduciary responsibility that could subject
Axion, any of its Subsidiaries or any officer of Axion or any of its
Subsidiaries to the tax or penalty on prohibited transactions imposed by such
Section 4975 or to any liability under Section 409 or Section 502(i) or (l) of
ERISA.
(v) With respect to any Benefit Plan that is an employee welfare benefit
plan, (x) no such Benefit Plan is funded through a "welfare benefits fund", as
such term is defined in Section 419(e) of the Code, (y) each such Benefit Plan
that is a "group health plan", as such term is defined in Section 5000(b)(1) of
the Code, complies with the applicable requirements of Section 498OB(f) of the
Code and (z) each such Benefit Plan (including any such Plan covering retirees
or other former employees) may be amended or terminated without material
liability to Axion or any of its Subsidiaries on or at any time after the
Effective Time.
(vi) No Commonly Controlled Entity has acted in a manner that could, or
failed to act so as to, result in fines, penalties, taxes or related charges
under
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29
(A) Section 502(c), (i) or (l) of ERISA or (B) Chapter 43 of the Code.
(vii) Neither Axion nor any Commonly Controlled Entity contributes or is
obligated to contribute (or has ever been obligated to contribute) to a
"multiemployer plan" (within the meaning of Section 4001(a)(3) of ERISA.
(viii) Except as set forth on Schedule 4.01(h), no employee of Axion will
be entitled to any additional benefits or any acceleration of the time of
payment or vesting of any benefits under any Benefit Plan as a result of the
transactions contemplated by this Agreement or the other Documents.
(i) Absence of Changes in Benefit Plans. Except as set forth on Schedule
4.01(i) and except in accordance with the provisions of Article VI of the
Distribution Agreement, since December 31, 1995, there has not been any adoption
or amendment in any material respect by Axion or any of its Subsidiaries of any
Benefit Plan.
(j) Taxes. (i) No liens for Taxes (as defined in Section 1 of the Tax
Matters Agreement) exist with respect to any of the assets or properties of the
Affiliated Group (as defined in the Tax Matters Agreement), other than liens for
Taxes that are not yet due and payable, (ii) all federal, state, local and
foreign Tax returns (including information returns), reports, declarations or
statements relating to Taxes, including any schedules or attachments thereto or
amendments thereof ("Tax Returns"), filed by or on behalf of any member of the
Affiliated Group and the Partnership have been timely filed, (iii) each such Tax
Return was complete and correct in all material respects, except to the extent
that an adequate reserve therefor has been established on the Axion Financial
Statements, (iv) all Taxes with respect to taxable periods covered by such Tax
Returns and all other Taxes that are currently due and payable for which any
member of the Affiliated Group and the Partnership is or might otherwise be
liable (together "Relevant Taxes") have been paid in full, except to the extent
that an adequate reserve therefor has been established on the Axion Financial
Statements, (v) except as set forth in Schedule 4.01(j), all Tax Returns filed
by or on behalf of the Affiliated Group and the Partnership have been examined
by and settled with the relevant governmental authorities ("Taxing Authorities")
and any deficiency resulting from any such audit, examination or deficiency
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30
litigation has been paid in full (and no material issues were raised by the
relevant Taxing Authorities during any such audit or examination that would
apply to taxable periods other than the taxable period to which such audit or
examination related) or the statute of limitations with respect to such Tax
Returns has expired, (vi) there is no audit or examination in progress, and no
deficiency or refund litigation pending and no Taxing Authority has given oral
or written notice of the commencement of any audit, examination or deficiency
litigation, with respect to any Relevant Taxes, (vii) all requests for
extensions of time for filing of Tax Returns that have not been filed have been
granted and have not yet expired, (viii) none of the Retained Company, any
member of the Affiliated Group or the Partnership is a party to a tax sharing
agreement, other than the Tax Matters Agreement, (ix) except to the extent that
an adequate reserve therefor has been established on the Axion Financial
Statements, none of the Retained Company, any member of the Affiliated Group or
the Partnership shall be required to include in a taxable period ending after
the date on which the Effective Time occurs taxable income attributable to
income that economically accrued in a taxable period ending prior to the date on
which the Effective Time occurs, whether as a result of the installment method
of accounting, the completed contract method of accounting, the long-term method
of accounting, the cash method of accounting or Section 481 of the Code or
comparable provisions of state, local or foreign Tax law, or otherwise, other
than income allocated from or otherwise attributable to operations of the
Partnership, (x)(A) no person has made with respect to the Retained Company, any
member of the Affiliated Group or the Partnership, or with respect to any
property held by the Retained Company, any member of the Affiliated Group or the
Partnership, any consent under Section 341 of the Code, (B) no property of the
Retained Company, any member of the Affiliated Group or the Partnership is
"tax-exempt use property" within the meaning of Section 168(f)(8) of the Code,
(C) none of the Retained Company, any member of the Affiliated Group or the
Partnership is a party to any lease made pursuant to Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect prior to the date of
enactment of the Tax Equity and Fiscal Responsibility Act of 1982 and (D) none
of the assets of the Retained Company, any member of the Affiliated Group or the
Partnership is subject to a lease under Section 7701(h) of the Code or under any
predecessor, (xi) there is no agreement or other document extending, or having
the effect of extending, the period of
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31
assessment or collection of any Relevant Taxes and no power of attorney with
respect to any Relevant Taxes has been executed or filed with any Taxing
Authority and (xii) neither Axion nor any member of the Affiliated Group nor any
member of any controlled group (within the meaning of Section 993(a)(3) of the
Code) that includes Axion or any of its Subsidiaries (other than any BMS Entity,
as defined in the Tax Matters Agreement) nor the Partnership, nor any of their
respective officers, directors, employees or independent contractors acting on
their behalf, has participated in or cooperated with an international boycott
(within the meaning of Section 999(b)(3) of the Code).
(k) No Excess Parachute Payments. Except as set forth in Schedule 4.01(k),
any amount that could be received (whether in cash or property or the vesting of
property) as a result of any of the transactions contemplated by this Agreement
by any employee, officer or director of Axion or any of its affiliates who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.28OG-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would not be characterized as an "excess parachute payment" (as such term is
defined in Section 28OG(b)(1) of the Code).
(l) State Takeover Statutes. The Board of Directors of Axion has approved
the Merger, the Contributions, the Distribution and the Documents and the
transactions contemplated hereby and thereby. The provisions of Section 203 of
the DGCL are not applicable to the Merger, the Contributions, the Distribution,
this Agreement and the Documents and the transactions contemplated by this
Agreement and the other Documents. The execution, delivery and performance of
this Agreement and consummation of the transactions contemplated hereby will not
cause to be applicable to Axion any "fair price", "moratorium", "control share
acquisition" or other similar antitakeover statute or regulation enacted under
(i) Delaware or California state laws or (ii) to the
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32
knowledge of Axion, under any other state or federal laws in the United States
or any foreign jurisdiction (each a "Takeover Statute") (after giving effect to
any actions that will be taken prior to the Effective Time).
(m) Brokers; Fees and Expenses. No broker, investment banker, financial
advisor or other person, other than Alex. Brown & Sons Incorporated ("Alex.
Brown"), is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement or the other Documents based upon arrangements made by or on
behalf of Axion, its Subsidiaries and its affiliates. As of the date hereof,
Axion Expenses including the fees of Alex. Brown, all Axion's expenses in
connection with printing and mailing of the Proxy Statement, the other Required
AHC Documents and the Form S-4 and all the fees and expenses of Axion's legal
counsel, independent accountants and other advisors are estimated to total not
more than $2,500,000.
(n) Matters Related to the Distribution Agreement. (i) Except as set forth
in Schedules 4.01(n)(i), no entity other than Axion or one of its Subsidiaries
on the date hereof owns, leases, subleases or has any other rights in, to or
under any Retained Assets.
(ii) To the knowledge of Axion, except as set forth on Schedule
4.01(n)(ii), the Assets of OTNC consist solely of the general partnership
interest of OTNC in the Partnership, and OTNC has no Liabilities other than (A)
those Liabilities solely and directly related to the Partnership, (B) Tax
Liabilities for which the BMS Indemnified Parties (as defined in the Tax Matters
Agreement) are entitled to indemnification pursuant to Section 1 of the Tax
Matters Agreement and (C) Retained Tax Liabilities (as defined in the Tax
Matters Agreement).
(iii) Schedule 4.01(n)(iii) sets forth all the intercompany receivables and
payables between Axion and its Subsidiaries as of March 31, 1996, together with
a description of the nature of such obligations. Except as set forth on Schedule
4.01(n)(iii), as of the Time of Contribution, there will be no intercompany
receivables or payables outstanding other than intercompany receivables or
payables (I) set forth in Schedule 4.01(n)(iii) to the extent not paid prior to
the Time of Contribution and (II) otherwise incurred in the ordinary course of
business consistent with past practice which are of the same type as
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33
those intercompany payables and receivables incurred in the ordinary course of
business consistent with past practice identified in Schedule 4.01(n)(iii).
(o) Compliance with Applicable Laws. (i) Axion and its Subsidiaries have
complied in all material respects with all applicable statutes, laws,
regulations, rules, judgments, orders and decrees of all Governmental Entities
("Applicable Laws"), including the Federal Food, Drug, and Cosmetic Act (21
U.S.C. ss.ss.301-394) and regulations issued under that Act, similar state
statutes, the federal anti-kickback statute (42 U.S.C. ss.1320a-7b)), the
federal "Stark" law (42 U.S.C. ss.1395nn), the federal false statements act (18
U.S.C. ss.1001), the federal false claims act (31 U.S.C. ss.3729), the HSR Act
(15 U.S.C. ss.18a), other federal and state statutes relating to fraud or abuse,
and state statutes relating to consumer protection or unlawful business
practices. Except as set forth in Schedule 4.01(o)(i), since January 1, 1991,
neither Axion nor any of its Subsidiaries has received any written notice from a
Governmental Entity or any other person alleging any non-compliance in a
material respect with any Applicable Laws. Except as disclosed in Schedule
4.01(o)(i), since January 1, 1991, neither Axion nor any of its Subsidiaries has
received any notice, whether written or oral, of any administrative, civil or
criminal investigation regarding any Applicable Laws or any audit by a
Governmental Entity. This Section 4.01(o) does not apply to the specific labor,
employment and employee benefit matters referred to in Section 4.01(h), the
specific environmental matters referred to in Section 4.01(o)(iii) or to the
specific tax matters referred to in Section 4.01(j).
(ii) Axion and its Subsidiaries validly hold all material permits,
licenses, variances, exemptions, orders and approvals of, and have made all
filings, applications and registrations with, all Governmental Entities
(collectively, "Permits") that are necessary for the conduct of the business of
Axion and its Subsidiaries taken as a whole as such businesses are presently
conducted or are otherwise currently maintained by Axion or any of its
Subsidiaries. At the Effective Time, the Retained Company and its Subsidiaries
will validly hold all Permits that are necessary for the conduct of the business
of the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise held or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Schedule 4.01(o)(ii) sets forth
a true and
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34
complete list of all Permits which are necessary for the conduct of the business
of the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise held or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Axion and its Subsidiaries have
complied in all material respects with all material terms and conditions of all
Permits and the same will not be subject to suspension, modification, revocation
or nonrenewal as a result of the execution, delivery or performance of the
Documents or the consummation of the Contributions, the Distribution or the
Merger or the other transactions contemplated hereby or by the other Documents.
All Permits which are held in the name of any employee, officer, director,
stockholder, agent or otherwise on behalf of Axion or its Subsidiary shall be
deemed included under this warranty.
(iii) Since December 31, 1995, neither Axion nor any of its Subsidiaries
has received any written communication from a Governmental Entity that alleges
that Axion or any of its Subsidiaries is not in compliance in any material
respect with any Environmental Laws (as defined below). Axion and its
Subsidiaries hold, and are in compliance in all material respects with, all
permits, licenses and governmental authorizations required for Axion and its
Subsidiaries to conduct their respective businesses under the Environmental
Laws, and are in compliance in all material respects with all Environmental
Laws. Axion and its Subsidiaries are not subject to any pending, or to the
knowledge of Axion any threatened, claim, judgment, decree, order or any other
enforcement action relating to compliance with any Environmental Law or to
investigation or cleanup of Hazardous Materials (as defined below) under any
Environmental Law. Neither Axion nor any of its Subsidiaries has any contingent
liabilities in respect of its business in connection with any Hazardous
Materials. There are no aboveground or underground storage tanks on any Axion
Property (as defined in Section 4.01(s)). As used in this Agreement, the term
"Environmental Laws" means any and all applicable treaties, laws, regulations,
enforceable requirements, binding determinations, orders, decrees, judgments,
injunctions, permits, approvals, authorizations, licenses, variances,
permissions, notices or binding agreements issued, promulgated or entered into
by any Governmental Entity, relating to the environment, preservation or
reclamation of natural resources, or to the management, release or threatened
release of Hazardous Materials. As used in this Agreement, the term "Hazardous
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35
Materials" means all explosive or regulated radioactive materials or substances,
hazardous or toxic substances, wastes or chemicals, petroleum distillates,
asbestos or asbestos containing materials, and all other materials or chemicals
regulated pursuant to any Environmental Law.
(p) Retained Business. (i) Except as set forth in Schedule 4.01(p), from
and after the Effective Time, except as provided in the Documents, neither AHC
nor any of its Subsidiaries nor OnCare or any of its Subsidiaries will use in
the conduct of its business or own or have rights to use any assets or property
(other than assets or property that are available to the general public in the
public domain), whether tangible, intangible or mixed, that are also used in the
conduct of the Retained Business. From and after the Effective Time, except as
set forth in Schedule 4.01(p) or as expressly provided for in the Documents,
neither AHC nor any of its Subsidiaries nor OnCare or any of its Subsidiaries
will be a party to any agreement, arrangement or understanding with the Retained
Company or any of its Subsidiaries, including any Contract, providing for the
furnishing of material, equipment, products or services or the rental of real or
personal property to or from, or otherwise relating to the business or
operations of, the Retained Company or any of its Subsidiaries or pursuant to
which the Retained Company or any of its Subsidiaries may have any obligation or
liability. From and after the Effective Time, neither the Retained Company nor
any of its Subsidiaries will have any Liabilities (as defined in the
Distribution Agreement) in any way relating to the business, operations,
indebtedness, assets or liabilities of AHC or any of its Subsidiaries or OnCare
or any of its Subsidiaries, except as otherwise expressly provided for in the
Documents and except for Liabilities for which the BMS Indemnified Parties (as
defined in the Indemnification Agreement) are fully indemnified pursuant to the
Indemnification Agreement.
(ii) The Retained Assets are sufficient to conduct the business of the
Partnership and the OPUS Station Business (as defined in the Distribution
Agreement) in each case as presently conducted on a stand-alone basis (A)
assuming the Limited Partnership Agreement between OTNC and Bristol-Myers
Oncology Therapeutic Network Inc. dated as of July 8, 1993 (the "Partnership
Agreement"), the Sales Agency Agreement between BMS and the Partnership, the
Trademark License Agreement between BMS and the Partnership, the Guarantee by
Axion and the Guarantee by BMS, each dated
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36
as of July 8, 1993, remain in place and (B) it being understood that (i) the
OPUS Station Business as currently conducted and as proposed to be conducted
immediately following the Effective Time is operating and is projected to
operate on a loss basis to the extent previously disclosed to BMS in writing and
(ii) the OPUS Station Business when contributed to Axion in accordance with the
provisions of Article II of the Distribution Agreement will not include any cash
or cash equivalents. None of the foregoing shall be interpreted as a
representation that sufficient cash will remain in the Partnership to operate
the business of the Partnership consistent with past practice.
(q) Intellectual Property. Schedule 4.01(q)(i) sets forth a true and
complete list of all patents, trademarks (registered or unregistered),
tradenames, servicemarks and copyrights and applications therefor and a general
description of other material intellectual property and proprietary rights,
whether or not subject to statutory registration or protection (collectively,
"Intellectual Property"), owned, used, filed by or licensed to Axion or any of
its Subsidiaries. With respect to registered trademarks, Schedule 4.01(q)(i)
sets forth a list of all jurisdictions in which such trademarks are registered
or applied for and all registration and application numbers. Schedule
4.01(q)(ii) sets forth a true and complete list of all Intellectual Property
which is necessary for the conduct of the business of the Retained Company and
its Subsidiaries immediately following the Effective Time or are otherwise
owned, used, filed by or licensed to the Retained Company and its Subsidiaries
on the date hereof. Except as set forth in Schedules 4.01(q)(i) and 4.01(q)(ii),
all such Intellectual Property is validly held by Axion or the relevant
Subsidiary (or, in the case of any Intellectual Property that is necessary for
the conduct of the business of the Retained Company and its Subsidiaries
immediately following the Effective Time or are otherwise owned, used, filed by
or licensed to the Retained Company and its Subsidiaries on the date hereof,
will be validly held by the Retained Company or one of its Subsidiaries
immediately following the Effective Time). Axion and its Subsidiaries have the
right with respect to all Intellectual Property listed in Schedule 4.01(q)(i),
and immediately following the Effective Time the Retained Company and its
Subsidiaries will have the right with respect to all Intellectual Property
listed in Schedule 4.01(q)(ii), to use, execute, reproduce, display, perform,
modify, enhance, distribute,
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prepare derivative works of and sublicense, without payment to any other person,
all such Intellectual Property. The execution, delivery or performance of the
Documents or the consummation of the Contributions, the Distribution or the
Merger or the other transactions contemplated hereby or thereby will not
conflict with, alter or impair any such rights of the Retained Companies.
Except as set forth in the Documents or in Schedule 4.01(q)(i), neither
Axion nor any of its Subsidiaries has granted any options, licenses or
agreements of any kind relating to Intellectual Property listed in Schedules
4.01(q)(i) or 4.01(q)(ii) or the marketing or distribution thereof. Neither
Axion nor any of its Subsidiaries is bound by or a party to any options,
licenses or agreements of any kind relating to the Intellectual Property of any
other person, except as set forth in the Documents or in Schedules 4.01(q)(i) or
4.01(q)(ii). All Intellectual Property listed in Schedules 4.01(q)(i) and
4.01(q)(ii) is free and clear of the claims of others and of all Liens. The
conduct of the business of Axion and its Subsidiaries as presently conducted and
the conduct of the business of the Retained Company and its Subsidiaries as
proposed to be conducted immediately following the Effective Time does not
violate, conflict with or infringe the Intellectual Property of any other person
other than any such violations, conflicts or infringements that individually or
in the aggregate, have not had, and could not reasonably be expected to have, a
Retained Company Material Adverse Effect or an Axion Material Adverse Effect.
There are no claims pending or, to the knowledge of Axion, threatened, against
Axion or any Subsidiary by any person with respect to the ownership, validity,
enforceability, effectiveness or use of any Intellectual Property. Since January
1, 1993, Axion and its Subsidiaries have not received any communications
alleging that Axion or any Subsidiary has violated any rights relating to
Intellectual Property of any person.
The Intellectual Property listed in Schedule 4.01(q)(ii) has been
maintained in confidence in accordance with protection procedures customarily
used in the industries of Axion and its Subsidiaries to protect rights of like
importance. All former and current members of management and key personnel of
Axion or any of its Subsidiaries, including all former and current employees of
Axion or any of its Subsidiaries and all agents, consultants and independent
contractors retained by Axion or any of its
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38
Subsidiaries, in each case who have contributed to or participated in the
conception and development of software or other Intellectual Property listed in
Schedule 4.01(q)(ii) (collectively, "Personnel"), have executed and delivered to
Axion or such Subsidiary a proprietary information agreement restricting such
person's right to disclose proprietary information of Axion, its Subsidiaries
and their respective clients. All former and current Personnel either (i) have
been party to a "work-for-hire" arrangement or agreement with Axion, in
accordance with applicable Federal and state law, that has accorded Axion or its
Subsidiaries full, effective, exclusive and original ownership of all tangible
and intangible property thereby arising or (ii) have executed appropriate
instruments of assignment in favor of Axion or its Subsidiary as assignee that
have conveyed to Axion or its Subsidiary full, effective and exclusive ownership
of all tangible and intangible property thereby arising. No former or current
Personnel have any valid claim against Axion or any of its Subsidiaries in
connection with such person's involvement in the conception and development of
any Intellectual Property which is necessary for the conduct of the business of
the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise owned, used, filed by or licensed to the Retained Company
and its Subsidiaries on the date hereof, and no such claim has been asserted or,
to the knowledge of Axion, is threatened. None of the current officers and
employees of Axion or any of its Subsidiaries have any patents issued or
applications pending for any device, process, design or invention of any kind
now used or needed by Axion or any of its Subsidiaries in the furtherance of its
business operations, which patents or applications have not been assigned to
Axion or its Subsidiary, with such assignment duly recorded in the United States
Patent Office.
(r) Assets Other than Real Property Interests. Axion or one of its
Subsidiaries has good and valid title to all assets reflected on the December
31, 1995 audited consolidated balance sheet included in the Axion Financial
Statements (the "December 31, 1995 Axion Balance Sheet") or thereafter acquired
("Axion Personal Property"), except (x) those sold or otherwise disposed of for
fair value since December 31, 1995 in the ordinary course of business consistent
with past practice and not in violation of this Agreement and (y) those
transferred to OnCare in connection with the distribution of the capital stock
of OnCare on December 31, 1995 to the Axion stockholders as reflected in
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39
Note 2 ("Investment in Oncare Inc.") to the Audited Axion Financial Statements,
in each case free and clear of all mortgages, Liens, security interests or
encumbrances of any kind except (i) such as are set forth in Schedule
4.01(r)(i), (ii) mechanics', carriers', workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business, liens arising
under original purchase price conditional sales contracts and equipment leases
with third parties entered into in the ordinary course of business and liens for
Taxes and other governmental charges which are not due and payable or which may
thereafter be paid without penalty, (iii) mortgages, Liens, security interests
and encumbrances which secure debt that is reflected as a liability on the
December 31, 1995 Axion Balance Sheet and the existence of which is indicated in
the notes thereto and (iv) other imperfections of title or encumbrances, if any,
which do not, individually or in the aggregate, materially impair the continued
use and operation of the assets to which they relate in the business of Axion
and its Subsidiaries taken as a whole as presently conducted (the mortgages,
Liens, security interests, encumbrances and imperfections of title described in
clauses (ii), (iii) and (iv) above are hereinafter referred to collectively as
"Permitted Liens"). Schedule 4.01(r)(ii) sets forth a true and complete list of
all Axion Personal Property which is necessary for the conduct of the business
of the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise used or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof. Title to all Axion Personal
Property is validly held by Axion or the relevant Subsidiary (or, in the case of
any Axion Personal Property that is necessary for the conduct of the business of
the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise used or maintained by or for the benefit of the Retained
Company and its Subsidiaries on the date hereof, will be validly held by the
Retained Company or one of its Subsidiaries). Immediately following the
Effective Time the Retained Company and its Subsidiaries will have the right
with respect to Axion Personal Property listed in Schedule 4.01(r)(ii) to the
continued use and operation of such Axion Personal Property. The execution,
delivery or performance of the Documents or the consummation of the
Contributions, the Distribution or the Merger or the other transactions
contemplated hereby or thereby will not conflict with, alter or impair any such
rights of the Retained Companies.
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All material Axion Personal Property has been maintained in all material
respects in accordance with the past practice of Axion and its Subsidiaries and
generally accepted industry practice. Each item of material Axion Personal
Property is in all material respects in good operating condition and repair,
ordinary wear and tear excepted. All leased Axion Personal Property is in all
material respects in the condition required of such property by the terms of the
lease applicable thereto during the term of the lease and upon the expiration
thereof.
This Section 4.01(r) does not relate to real property or interests in real
property, such items being the subject of Section 4.01(s).
(s) Title to Real Property. Schedule 4.01(s)(i) sets forth a complete list
of all real property and interests in real property owned in fee by Axion and
its Subsidiaries (individually, an "Owned Property") and identifies any material
reciprocal easement or operating agreements relating thereto. Schedule
4.01(s)(i) sets forth a complete list of all real property and interests in real
property leased by Axion and its Subsidiaries (individually, a "Leased
Property", an Owned Property or Leased Property being sometimes referred to
herein, individually, as an "Axion Property" and, collectively, as "Axion
Properties"), and identifies any material base leases and reciprocal easement or
operating agreements relating thereto. Schedule 4.01(s)(ii) sets forth a true
and complete list of all Axion Property which is necessary for the conduct of
the business of the Retained Company and its Subsidiaries immediately following
the Effective Time or are otherwise used or maintained by or for the benefit of
the Retained Company and its Subsidiaries on the date hereof. Either Axion or
its Subsidiary has (or in the case of any Axion Property that is necessary for
the conduct of the business of the Retained Company and its Subsidiaries
immediately following the Effective Time or are otherwise used or maintained by
or for the benefit of the Retained Company and its Subsidiaries on the date
hereof, the Retained Company and its Subsidiaries will have) (i) good and
insurable fee title to all Owned Property and (ii) good and valid title to the
leasehold estates in all Leased Property, in each case free and clear of all
mortgages, Liens, security interests, encumbrances, leases, assignments,
subleases, easements, covenants, rights-of-way and other similar restrictions of
any nature whatsoever, except (A) such as are set forth in Schedules 4.01(s)(i)
or 4.01(s)(ii), (B) leases, subleases
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41
and similar agreements set forth in Schedules 4.01(v), (C) easements, covenants,
rights-of-way and other similar restrictions of record, (D) any conditions that
may be shown by a current, accurate survey or physical inspection of any Axion
Property made prior to Closing and (E) (I) zoning, building and other similar
restrictions, (II) mortgages, Liens, security interests, encumbrances,
easements, covenants, rights-of-way and other similar restrictions that have
been placed by any developer, landlord or other third party on property over
which Axion or its Subsidiary has easement rights or on any Leased Property and
subordination or similar agreements relating thereto, and (III) unrecorded
easements, covenants, rights-of-way and other similar restrictions, none of
which items set forth in clauses (I), (II) and (III), individually or in the
aggregate, materially impair the continued use and operation of the property to
which they relate in the business of the Retained Company and its Subsidiaries
taken as a whole or AHC and its Subsidiaries taken as a whole as presently
conducted. The current use by Axion and its Subsidiaries does not and the
proposed use by the Retained Company and its Subsidiaries of the plants, offices
and other facilities located on Axion Property does not violate any local zoning
or similar land use or government regulations in any material respect. Axion and
its Subsidiaries have with respect to the Axion Property listed in Schedule
4.01(s)(i), and immediately following the Effective Time the Retained Company
and its Subsidiaries will have the right with respect to the Axion Property
listed in Schedule 4.01(s)(ii), to use such Axion Property. The execution,
delivery or performance of the Documents or the consummation of the
Contributions, the Distribution or the merger or the other transactions
contemplated hereby or thereby will not conflict with, alter or impair any such
rights of the Retained Companies.
(t) Litigation. Schedule 4.01(t) sets forth a list of all pending claims,
actions, suits, inquiries or proceedings ("claims"), with respect to which Axion
or any of its Subsidiaries has been contacted in writing by counsel for the
plaintiff or claimant, against or affecting Axion or any of its Subsidiaries or
any of their respective properties, assets, operations or businesses and which
(i) relate to or involve more than $10,000, (ii) seek any injunctive or other
equitable relief or (iii) relate to the Contributions, the Distribution, the
Merger or any of the other transactions contemplated by the Documents. None of
the lawsuits or claims listed in Schedule 4.01(t) as to which there is at least
a reasonable possibility of adverse
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42
determination has had, or could reasonably be expected to have, if so
determined, individually or in the aggregate, a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect. Axion is not aware of any
unasserted claims (or of any facts which would support any such claims) of the
type that would be required to be disclosed in Schedule 4.01(t) if counsel for
the claimant had contacted Axion or any of its Subsidiaries. Neither Axion nor
any of its Subsidiaries is a party or subject to or in default under any
judgment, order, injunction or decree of any Governmental Entity or arbitration
tribunal applicable to it or any of its respective properties, assets,
operations or business. There is no lawsuit or claim by Axion or any of its
Subsidiaries pending, or which Axion or any of its Subsidiaries intends to
initiate, against any other person. Except as set forth in Schedule 4.01(t),
neither Axion nor any of its Subsidiaries has received written notice of any
pending or threatened investigation of or affecting Axion or any of its
Subsidiaries by any Governmental Authority, and to the knowledge of Axion
(without making any inquiry of any Governmental Authority), there is no pending
or threatened investigation of or affecting Axion or any of its Subsidiaries by
any Governmental Entity. Schedule 4.01(t) also sets forth a brief summary of all
claims, investigations, suits, actions or proceedings against Axion or any of
its Subsidiaries that have been settled or otherwise determined, disposed of or
abandoned or withdrawn at any time since January 1, 1991.
(u) Employee and Labor Matters. Except as set forth in Schedule 4.01(u),
(i) there is, and since January 1, 1991, there has been, no labor strike, labor
dispute, work stoppage or lockout pending, or, to the knowledge of Axion,
threatened, against or affecting Axion or any of its Subsidiaries; (ii) to the
knowledge of Axion, no union organizational campaign is in progress with respect
to the employees of Axion or any of its Subsidiaries and no question concerning
representation exists respecting such employees; (iii) neither Axion nor any of
its Subsidiaries is engaged in any unfair labor practice; (iv) there is no
unfair labor practice charge or complaint against Axion or any of its
Subsidiaries pending, or, to the knowledge of Axion, threatened, before the
National Labor Relations Board; (v) there are no pending, or, to the knowledge
of Axion, threatened, union grievances against Axion or any of its Subsidiaries
as to which there is a reasonable possibility of adverse determination and that,
if so determined, has had, or could reasonably be expected to
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43
have, individually or in the aggregate, a Retained Company Material Adverse
Effect or an AHC Material Adverse Effect; (vi) there are no pending, or, to the
knowledge of Axion, threatened, charges against Axion, any of its Subsidiaries
or any current or former employee of Axion or any of its Subsidiaries before the
Equal Employment Opportunity Commission or any state or local agency responsible
for the prevention of unlawful employment practices; and (vii) none of Axion or
any of its Subsidiaries has received notice since January 1, 1993, of the intent
of any Governmental Entity responsible for the enforcement of labor or
employment laws to conduct an investigation of or affecting Axion or any of its
Subsidiaries and, to the knowledge of Axion, no such investigation is in
progress.
Except as set forth in Schedule 4.01(v)(iv), neither Axion nor any of its
Subsidiaries is a party to, or bound by, (A) any contract of employment or
consulting agreement or (B) any Contract with any labor union or association,
including any collective bargaining, labor or similar agreement. Axion and each
of its Subsidiaries is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours.
Except as set forth in Schedule 4.01(u), no officer or director of Axion or
any of its Subsidiaries is, and, to the knowledge of Axion, no other employee of
Axion or any of its Subsidiaries is, a party to or bound by any contract,
license, covenant or agreement of any nature, or subject to any judgment, decree
or order of any Governmental Entity, that may interfere with the use of such
person's reasonable best efforts to promote the interests of Axion or any of its
Subsidiaries, conflict with the business of Axion or any of its Subsidiaries or
have, or could reasonably be expected to have, a Retained Company Material
Adverse Effect or an AHC Material Adverse Effect, provided that no
representation or warranty is made hereunder with respect to any officer or
director of AHC or OPUS Sub or any Transferred Employee (as such term is defined
in the Distribution Agreement) after the Effective Time. To the knowledge of
Axion, no activity of any employee of Axion or any of its Subsidiaries as or
while an employee of Axion or any of its Subsidiaries has caused a violation of
any employment contract, confidentiality agreement, patent disclosure agreement,
or other contract or agreement. To the knowledge of Axion, neither the execution
and delivery of this Agreement or the other Documents, nor the conduct of
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the business of Axion and its Subsidiaries by the employees of Axion and its
Subsidiaries, nor the conduct of the business of the Retained Company and its
Subsidiaries immediately following the Effective Time, conflicts or will
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any such employees are now obligated.
(v) Contracts. Except as set forth in Schedule 4.01(v), neither Axion
nor any of its Subsidiaries is a party to or bound by any of the following types
of Contract:
(i) other than the Employment Agreements, employment agreement or
employment contract that has an aggregate future liability in excess of
$25,000 or is not terminable by Axion or such Subsidiary by notice of not
more than 60 days for a cost of less than $25,000;
(ii) employee collective bargaining agreement or other contract with
any labor union;
(iii) other than the Non-Competition Agreements, covenant of Axion or
any of its Subsidiaries not to compete (other than pursuant to any radius
restriction contained in any lease, reciprocal easement or development,
construction, operating or similar agreement) or other covenant of Axion or
any of its Subsidiaries restricting the development, manufacture, marketing
or distribution of the products and services of Axion or any of its
Subsidiaries or the Retained Company or any of its Subsidiaries;
(iv) other than the Documents, agreement, contract or other
arrangement with (A) any Subsidiary or affiliate of Axion (including OnCare
and its Subsidiaries) or (B) any current or former officer, director or
employee of Axion or any of its Subsidiaries or any affiliate of Axion
(including OnCare and its Subsidiaries) (other than employment agreements
covered by clause (i) above);
(v) lease, sublease or similar agreement with any person other than
Axion or its Subsidiary under which Axion or its Subsidiary is a lessor or
sublessor of, or makes available for use to any person (including Axion and
its Subsidiaries) (A) any Axion Property or (B) any
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portion of any premises otherwise occupied by Axion or its Subsidiary;
(vi) lease or similar agreement with any person (including Axion and
its Subsidiaries) under which (A) Axion or its Subsidiary is lessee of, or
holds or uses, any machinery, equipment, vehicle or other tangible personal
property owned by any person or (B) Axion or its Subsidiary is a lessor or
sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by Axion or its Subsidiary, in any such
case which has an aggregate future liability or receivable, as the case may
be, in excess of $25,000 or is not terminable by Axion or such Subsidiary
by notice of not more than 60 days for a cost of less than $25,000;
(vii) (A) continuing contract for the future purchase of materials,
supplies or equipment (other than purchase contracts and orders for
inventory in the ordinary course of business consistent with past
practice), (B) management, service, consulting or other similar type of
contract or (C) advertising agreement or arrangement, in any such case
which has an aggregate future liability to any person (other than Axion or
its Subsidiary) in excess of $25,000 or is not terminable by Axion or such
Subsidiary by notice of not more than 60 days for a cost of less than
$25,000;
(viii) other than the License Agreement and the Distribution
Agreement, license, option or other agreement relating in whole or in part
to the Intellectual Property set forth in Schedules 4.01(q)(i) and
4.01(q)(ii) (including any license or other agreement under which Axion or
its Subsidiary is licensee or licensor of any such Intellectual Property)
or to trade secrets, confidential information or proprietary rights and
processes of Axion, any of its Subsidiaries or any other person;
(ix) agreement, Contract or other instrument under which Axion or any
of its Subsidiaries has borrowed any money from, or issued any note, bond,
debenture or other evidence of indebtedness to, any person (other than
Axion or its Subsidiary) or any other note, bond, debenture or other
evidence of indebtedness issued to any person (other than Axion or its
Subsidiary);
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46
(x) agreement, Contract or other instrument (including so-called
take-or-pay or keepwell agreements) under which (A) any person (including
Axion or any of its Subsidiaries) has directly or indirectly guaranteed
indebtedness, liabilities or obligations of Axion or any of its
Subsidiaries or (B) Axion or any of its Subsidiaries has directly or
indirectly guaranteed indebtedness, liabilities or obligations of any
person (in each case other than endorsements for the purpose of collection
in the ordinary course of business);
(xi) agreement, Contract or other instrument under which Axion or any
of its Subsidiaries has, directly or indirectly, made any advance, loan,
extension of credit or capital contribution to, or other investment in, any
person (other than Axion or any of its Subsidiaries);
(xii) mortgage, pledge, security agreement, deed of trust or other
instrument granting a lien or other encumbrance upon any Axion Property;
(xiii) other than the Documents, agreement, Contract or instrument
providing for indemnification of any person with respect to liabilities
relating to any current or former business of Axion or any of its
Subsidiaries or any predecessor person; or
(xiv) other than the Documents, agreement, Contract, lease, license,
commitment or instrument to which Axion or any of its Subsidiaries is a
party or by or to which it or any of its assets or business is bound or
subject which has an aggregate future liability to any person (including
Axion or any of its Subsidiaries) in excess of $25,000 or is not terminable
by Axion or such Subsidiary by notice of not more than 60 days for a cost
of less than $25,000.
All agreements, Contracts, leases, licenses, commitments or instruments of Axion
or any of its Subsidiaries listed in the Schedules hereto (collectively, the
"Scheduled Contracts") are valid, binding and in full force and effect (except
to the extent that any such Scheduled Contracts automatically terminate in
accordance with their terms after the date hereof) and are enforceable by Axion
or its relevant Subsidiary in accordance with their respective terms (except as
such enforceability may be limited by (i) bankruptcy, insolvency, moratorium,
reorganization and other similar laws affecting creditor' rights generally and
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(ii) the general principles of equity, regardless of whether asserted in a
proceeding in equity or at law). Neither Axion nor any of its Subsidiaries has
received written notice of, and Axion does not otherwise have actual knowledge
of, any pending or threatened proceedings under bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditor's rights
generally by or with respect to any party (other than Axion or its Subsidiaries)
to any Scheduled Contract or any pending or threatened claims challenging the
enforceability of any Scheduled Contract under the general principles of equity,
regardless of whether asserted in a proceeding in equity or at law. Axion and
its Subsidiaries have performed all material obligations required to be
performed by them to date under the Scheduled Contracts and they are not (with
or without the lapse of time or the giving of notice, or both) in breach or
default in any material respect thereunder and, to the knowledge of Axion, no
other party to any of the Scheduled Contracts is (with or without the lapse of
time or the giving of notice, or both) in breach or default in any material
respect thereunder. Complete and correct copies of all Scheduled Contracts,
together with all amendments or modifications thereto (including any waivers
related thereto), have been provided to BMS or its counsel.
(w) Insurance. The insurance policies (other than any Benefit Plans)
maintained with respect to Axion and its Subsidiaries and their respective
assets and properties are listed in Schedule 4.01(w). All such policies are in
full force and effect, all premiums due and payable thereon have been paid
(other than retroactive or retrospective premium adjustments that are not yet,
but may be, required to be paid with respect to any period ending prior to the
Closing Date under comprehensive general liability and workmen's compensation
insurance policies), and no notice of cancelation or termination has been
received with respect to any such policy which has not been replaced on
substantially similar terms on or prior to the date of such cancelation. The
activities and operations of Axion and its Subsidiaries have been conducted in a
manner so as to conform in all material respects to all applicable provisions of
such insurance policies. Axion and its Subsidiaries maintain policies of fire
and casualty, liability and other forms of insurance in such amounts, with such
deductibles and against such risks and losses as are, in Axion's judgment,
reasonable for the business and assets of Axion and its Subsidiaries taken as a
whole. Except as set forth in Schedule 4.01(w), none of the insurance policies
will be
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48
canceled or terminated (or give the insurer the right to cancel or terminate the
insurance policies) as a result of the execution, delivery or performance of the
Documents or the consummation of the Contributions, the Distribution or the
Merger or the other transactions contemplated hereby or thereby. Schedule
4.01(w) sets forth a true a complete list of all insurance policies which are
necessary for the conduct of the business of the Retained Company and its
Subsidiaries immediately following the Effective Time or are otherwise
maintained by or for the benefit of the Retained Company and its Subsidiaries on
the date hereof. Except as set forth in Schedule 4.01(w), all such insurance
policies are validly owned by Axion or the relevant Subsidiary (or in the case
of any insurance policies that are necessary for the conduct of the business of
the Retained Company and its Subsidiaries immediately following the Effective
Time or are otherwise maintained by or for the benefit of the Retained Company
and its Subsidiaries on the date hereof, will be held or owned by the Retained
Company or one of its Subsidiaries) and immediately following the Effective Time
Axion and its Subsidiaries will have the right to hold or own all insurance
policies listed in Schedule 4.01(w), or in the case of any insurance policies
that are necessary for the conduct of the business of the Retained Company and
its Subsidiaries immediately following the Effective Time or are otherwise
maintained by or for the benefit of the Retained Company and its Subsidiaries on
the date hereof, the Retained Company and its Subsidiaries will immediately
following the Effective Time have the right to hold or own all such insurance
policies.
(x) Customer Accounts Receivable; Inventories. (i) All customer accounts
receivable of the Retained Company and its Subsidiaries, whether reflected on
the December 31, 1995 unaudited consolidated balance sheet of Axion included in
the Retained Company Financial Statements (the "December 31, 1995 Retained
Company Balance Sheet") or subsequently created, have arisen from bona fide
transactions in the ordinary course of business. All such customer accounts
receivable are good and collectible at the aggregate recorded amounts thereof,
net of any applicable reserves for doubtful accounts reflected on the December
31, 1995 Retained Company Balance Sheet. The Retained Company and its
Subsidiaries have good and marketable title to their respective accounts
receivable, free and clear of all Liens, except as set forth in Schedule
4.01(x). Since December 31, 1995, there have not been any write-offs as
uncollectible of any notes or accounts receivable related to the Retained
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Business, except for write-offs in the ordinary course of business and
consistent with past practice which have not had, and could not reasonably be
expected to have, either individually or in the aggregate, a Retained Company
Material Adverse Effect.
(ii) The inventories of the Retained Company and its Subsidiaries, whether
reflected on the December 31, 1995 Retained Company Balance Sheet or
subsequently acquired, are generally of a quality and quantity usable and
salable at customary gross margins and with customary markdowns consistent in
all material respects with past practice in the ordinary course of business. The
inventories of the Retained Company and its Subsidiaries are reflected on the
December 31, 1995 Retained Company Balance Sheet and in their respective books
and records in accordance with generally accepted accounting principles applied
on a basis consistent with past practice. Since December 31, 1995, there have
not been any write-downs of the value of, or establishment of any reserves
against, any inventory of the Retained Company and its Subsidiaries, except for
write-downs and reserves in the ordinary course of business and consistent with
past practice which have not had, and could not reasonably be expected to have,
either individually or in the aggregate, a Retained Company Material Adverse
Effect.
(y) Accounts; Safe Deposit Boxes; Powers of Attorney; Officers and
Directors. Schedules 4.01(y)(i), (y)(ii) and (y)(iii) set forth (i) a true and
correct list of all bank and savings accounts, certificates of deposit and safe
deposit boxes of Axion and its Subsidiaries and those persons authorized to sign
thereon, (ii) true and correct copies of all corporate borrowing, depository and
transfer resolutions and those persons entitled to act thereunder, (iii) a true
and correct list of all powers of attorney granted by Axion and its Subsidiaries
and those persons authorized to act thereunder and (iv) a true and correct list
of all officers and directors of Axion and its Subsidiaries.
(z) Transactions with Affiliates. Except as set forth in Schedule 4.01(z),
none of the Scheduled Contracts between the Retained Company or any of its
Subsidiaries, on the one hand, and AHC or any of its Subsidiaries or affiliates
(including OnCare and its Subsidiaries), on the other hand, will continue in
effect subsequent to the Closing. Neither Axion nor any of its Subsidiaries have
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directly or indirectly entered into or permitted to exist any transaction with
any affiliate on terms that are less favorable to such person than those that
could be obtained in an arm's-length transaction with a third party. Neither AHC
or any of its Subsidiaries nor OnCare or any of its Subsidiaries nor, to the
knowledge of Axion, any of their respective senior officers, (a) has any direct
or indirect ownership interest in any person in which the Retained Company or
any of its Subsidiaries has any direct or indirect ownership interest in any
person or (b) has, individually or in the aggregate, any direct or indirect
controlling ownership interest in any person with which the Retained Company or
any of its Subsidiaries competes or has a business relationship (other than
persons engaged in the pharmaceutical manufacturing industry).
(aa) Effect of Transaction. As of the date of this Agreement no creditor,
employee, client, customer or other person having a material business
relationship with the Retained Company or any of its Subsidiaries has informed
Axion or any of its Subsidiaries (orally or in writing) that such person intends
to change such relationship because of the Contributions, the Distribution, the
Merger or any of the other transactions contemplated by the Documents, which
change, individually or in the aggregate with other such changes, have had, or
could reasonably be expected to have, a Retained Company Material Adverse
Effect.
(bb) Disclosure. (i) No representation or warranty of Axion or any of its
Subsidiaries contained in any Document, (ii) no statement by Axion or any of its
Subsidiaries to BMS or any of its representatives contained in any document,
certificate or schedule furnished or to be furnished by or on behalf of Axion or
any of its Subsidiaries to BMS or any of its representatives pursuant to any
Document, and (iii) to the knowledge of Axion, no other statement by Axion or
any of its Subsidiaries and no statement by any unaffiliated third party
contained in any such document, certificate or schedule furnished or to be
furnished to BMS or any of its representatives pursuant to any Document, in each
case, contains or will contain any untrue statement of a material fact, or omits
or will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading or necessary in order to fully and fairly provide the
information required to be provided by Axion or its Subsidiaries in any Document
or in any such document,
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51
certificate or schedule. The financial projections and valuations relating to
the Retained Company and its Subsidiaries and to AHC and its Subsidiaries
delivered to BMS by Axion or its representatives (including Alex. Brown and
Ernst & Young LLP) were prepared on the basis of assumptions Axion reasonably
believed in good faith at the time of preparation to be reasonable, and Axion
has no knowledge of any fact or information that would lead it to believe that
such assumptions are incorrect or misleading in any material respect.
(cc) Suppliers. Neither Axion nor any of its Subsidiaries has entered into
or made any Contract which has an aggregate future liability to any person
(other than Axion or any of its Subsidiaries) in excess of $25,000 for the
purchase of merchandise other than in the ordinary course of business consistent
with past practice and other than any Contract that terminated on or prior to
December 31, 1995 (and in respect of which neither Axion nor any of its
Subsidiaries has any further liability). Except for the suppliers named in
Schedule 4.01(cc), neither Axion nor any of its Subsidiaries has any supplier
(other than Axion or its Subsidiaries) from whom it purchased more than 5% of
the merchandise which it purchased during its most recent full fiscal year.
Since December 31, 1995, there has not been (i) any material adverse change in
the business relationship of Axion or its Subsidiaries with any supplier of
merchandise named in Schedule 4.01(cc) or (ii) any change in any material term
(including credit terms) of the supply agreements or related arrangements with
any such supplier.
(dd) Customers. Neither Axion nor any of its Subsidiaries has entered into
or made any Contract for the sale of merchandise which, individually or in the
aggregate, would be material to the business of the Retained Company and its
Subsidiaries other than in the ordinary course of business consistent with past
practice and other than Contracts that terminated on or prior to December 31,
1995 (and in respect of which neither Axion nor any of its Subsidiaries has any
further liability). Except for the customers named in Schedule 4.01(dd), neither
the Retained Company nor any of its Subsidiaries has any customer to whom it
made more than 5% of its sales during its most recent full fiscal year. Since
December 31, 1995, there has not been (i) any material adverse change in the
business relationship of Axion or any of its Subsidiaries with any customer
named in Schedule 4.01(dd) or (ii) any change in any material term (including
credit terms) of the sales
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52
agreements or related agreements with any such customer. Since January 1, 1993,
the Retained Company and its Subsidiaries have received no customer complaints
concerning their products and services, nor have they had any of their products
returned by a purchaser thereof, other than complaints and returns in the
ordinary course of business which have not had, and could not reasonably be
expected to have, individually or in the aggregate, a Retained Company Material
Adverse Effect.
(ee) Accuracy of Representations and Warranties. No representation made by
Axion or any of its Subsidiaries in any Document or any of the schedules hereto
or thereto is false or misleading in any material respect or contains any
material misstatement of fact.
SECTION 4.02. Representations and Warranties of BMS. BMS represents and
warrants to Axion as follows:
(a) Organization, Standing and Corporate Power. Each of BMS and BMS Sub is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted. Each of BMS and BMS
Sub is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect on
the business, operations, assets, liabilities (including contingent
liabilities), results of operations, financial condition or prospects of BMS and
its Subsidiaries taken as a whole (a "BMS Material Adverse Effect"). BMS has
delivered to Axion complete and correct copies of the Certificate of
Incorporation and By-laws of each of BMS and BMS Sub, in each case as amended to
the date hereof.
(b) Validly Issued. All shares of BMS Common Stock which may be issued
pursuant to this Agreement will be, when issued, duly authorized, validly
issued, fully paid and nonassessable, not subject to preemptive rights and free
of any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof.
(c) Authority; Noncontravention. (i) Each of BMS and BMS Sub has all
requisite corporate power and
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53
authority to execute and deliver each Document to which it is or will be a party
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance of each Document to which it is or will be a
party and the consummation of the Merger and the other transactions contemplated
hereby and thereby in accordance with their respective terms in each case by BMS
or BMS Sub, as the case may be, have been duly authorized by all necessary
corporate action on the part of BMS and BMS Sub, and no other corporate
proceedings are required on the part of BMS or BMS Sub to consummate the
transactions so contemplated. Each Document to which BMS or BMS Sub is or will
be a party has been, or will be, duly executed and delivered by BMS or BMS Sub,
as applicable, and constitutes or, upon such execution and delivery will
constitute, a valid and binding obligation of such party, enforceable against
such party, in accordance with its terms.
(ii) None of the execution, delivery or performance by BMS or BMS Sub of
any Document to which BMS or BMS Sub is or will be a party, the consummation of
the transactions contemplated hereby and thereby or the compliance by BMS or BMS
Sub with the terms of each Document to which BMS or BMS Sub is or will be a
party will conflict with, or result in any violation or breach of, or default
(with or without notice or lapse of time, or both) under, or give rise to any
right of termination, amendment, cancelation or acceleration of any material
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of BMS or BMS Sub (i) under the
Certificate of Incorporation or By-laws of BMS or BMS Sub or the comparable
charter or organizational documents of any other Subsidiary of BMS, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable to
BMS or any Subsidiary of BMS or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to BMS or any Subsidiary of BMS or their respective
properties or assets, other than, in the case of clause (ii), any such
conflicts, violations, defaults, rights or Liens that individually or in the
aggregate would not be reasonably expected to have a BMS Material Adverse
Effect. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to BMS or BMS Sub in
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54
connection with the execution, delivery or performance by BMS or BMS Sub of each
Document to which any of them is or will be a party or the consummation by BMS
or BMS Sub, as the case may be, of the transactions contemplated hereby or
thereby or the compliance by BMS or BMS Sub with the terms of each Document to
which any of them is or will be a party, except for (i) the filing of a
premerger notification and report form under the HSR Act, (ii) the filing of the
Certificate of Merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Axion is
qualified to do business, (iii) the filing with the SEC of the Form S-4 and (iv)
such consents, approvals, orders, authorizations, registrations, declarations or
filings as may be required under the "takeover" or "blue sky" laws of various
states.
(d) SEC Documents. BMS has filed all required reports, schedules, forms,
statements and other documents with the SEC since January 1, 1995 (the "BMS SEC
Documents"). As of their respective dates, the BMS SEC Documents complied in all
material respects with the requirements of the Securities Act or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such BMS SEC Documents, and none of the BMS SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of BMS included in the BMS SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of BMS and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal, recurring year-end audit
adjustments).
(e) Absence of Certain Changes or Events. Except as disclosed in any BMS
SEC Documents filed and publicly available on or prior to the date of this
Agreement, since December 31, 1995, no event, change, circumstance or
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55
development has occurred that has had, or could reasonably be expected to have,
a BMS Material Adverse Effect other than any BMS Material Adverse Effect arising
out of, relating to or resulting from changes in the economy in general or the
pharmaceutical industry or consumer products industry in general and not
relating to BMS or any of its Subsidiaries in particular including any BMS
Material Adverse Effect arising out of, relating to or resulting from any
developments in the pharmaceutical industry with respect to any existing or
proposed regulation or legislation related to health care or health care reform
(including, but not limited to, any such regulation or legislation relating to
the pricing or marketing of pharmaceutical products) or the adoption, enactment
or application of any such regulation or legislation, or (ii) any BMS Material
Adverse Effect arising out of, relating to or resulting from matters disclosed
in the BMS Securities Documents filed on or prior to the date of this Agreement
(or that could reasonably be foreseen to arise out of, relate to or result from
such matters).
(f) Litigation. Except as disclosed in any BMS SEC Documents filed and
publicly available on or prior to the date of this Agreement, there is no claim,
investigation, suit, action or proceeding pending or, to the knowledge of BMS,
threatened against BMS or any of its Subsidiaries that, satisfies each of the
following conditions: (i) BMS would be required to disclose such suit, action or
proceeding in its Annual Report on Form 10-K pursuant to the standards for
disclosure set forth in Item 103 of Regulation S-K promulgated under the
Securities Act, (ii) such suit, action or proceeding is reasonably likely to be
adversely determined; and (iii) if such suit, action or proceeding were
adversely determined, it could reasonably be expected (A) to have a BMS Material
Adverse Effect or (B) to materially impair the ability of BMS or BMS Sub to
perform their respective obligations under this Agreement or the other Documents
to which either of them is or will be a party.
(g) Accuracy of Representations and Warranties. No representation or
warranty made by BMS or BMS Sub in any Document or any of the schedules hereto
or thereto is false or misleading in any material respect or contains any
material misstatement of fact.
(h) Information Supplied. None of the information supplied by BMS or its
representatives for
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56
inclusion or incorporation by reference in the Proxy Statement or the Form S-4
will, at the date mailed to stockholders and at the time of the Stockholders'
Meeting to be held in connection with the Merger, in the case of the Proxy
Statement, and at the time the Form S-4 becomes effective under the Securities
Act or at the Effective Time, in the case of the Form S-4, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading, except that no
representation is made by BMS with respect to statements made therein based on
information supplied by Axion, its Subsidiaries or its representatives for
inclusion in the Proxy Statement or the Form S-4.
(i) Voting Requirements. No action by the stockholders of BMS is required
to approve this Agreement and the transactions contemplated by this Agreement or
any of the other Documents.
(j) Interim Operations of BMS Sub. BMS Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby and has engaged in
no other activities.
(k) Brokers, Fees and Expenses. No broker, investment banker, financial
advisor or other person, other than Goldman, Sachs & Co., is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement.
ARTICLE V
Covenants
SECTION 5.01. Ordinary Conduct of Axion and its Subsidiaries. During the
period from the date of this Agreement and continuing to the Effective Time,
Axion agrees as to itself and to its Subsidiaries that, except for the
Contributions, the Distribution, the Merger and the other transactions expressly
provided for in the Documents, as expressly contemplated or permitted by this
Agreement or to the extent that BMS shall otherwise consent in writing (it being
understood that BMS shall be deemed to have consented to any action or failure
to act that would constitute a
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57
breach of this Section 5.01 if and to the extent such action or failure to act
was taken pursuant to the express written direction of the Deciding Member (as
defined in the Partnership Agreement Amendment (as defined in Section 6.08(c))
in accordance with the provisions of Section 7.7 of the Partnership Agreement,
as amended by the Partnership Agreement Amendment) with such consent to be
within BMS's sole discretion:
(a) Ordinary Course. Axion and its Subsidiaries shall each carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as presently conducted consistent with past practice and shall
make all reasonable best efforts to preserve intact their current business
organizations, keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings with the Retained
Business with the goal that the goodwill and ongoing businesses of the Retained
Business shall be unimpaired at the Effective Time it being understood that the
failure of any employee of the Retained Company to be an employee of the
Retained Company or its Subsidiaries at the Effective Time (other than James W.
Adams, Michael B. Cunningham, Warren M. Dodge, Lynn B. Hammerschmidt and David
L. Levison) shall not constitute a breach of this covenant; provided, that no
employee of the Retained Company may be terminated by Axion or any of its
Subsidiaries prior to the Effective Time, except with cause or with the prior
written consent of BMS which consent shall not be unreasonably withheld;
provided further, that the satisfaction of any Pre-JV Sales Taxes and JV Sales
Taxes shall not constitute a breach of this covenant. Axion, its Subsidiaries
and their respective directors, officers or employees shall each continue to use
their respective reasonable best efforts to promote the interests of Axion and
its Subsidiaries, and Axion shall not, nor shall it permit any of its
Subsidiaries or any of their respective directors, officers or employees to,
take any action that would conflict with the business of Axion or any of its
Subsidiaries or that would have or could reasonably be expected to have, a
Retained Company Material Adverse Effect or an AHC Material Adverse Effect.
(b) Changes in Stock; Dividends. Axion shall not, nor shall it permit any
of its Subsidiaries to, (i) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in
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58
respect of, in lieu of or in substitution for shares of its capital stock; (ii)
repurchase, redeem or otherwise acquire any shares of capital stock of Axion or
any of its Subsidiaries or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities except as disclosed in
Schedule 5.01(b); (iii) transfer or sell, or authorize or propose or agree to
the issuance, transfer or sale by Axion or any such Subsidiary of any shares of
its capital stock of any class or other equity interests, any other voting
securities or any securities convertible into or exchangeable for, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible or exchangeable securities, other than the issuance, transfer, sale
or disposition of Axion Common Stock upon the exercise of Axion Options
outstanding as of the date of this Agreement in accordance with their terms on
the date hereof or (iv) issue, declare, set aside, make or pay any dividends on
or other distributions with respect to its capital stock.
(c) Governing Documents. Axion shall not, nor shall it permit any of its
Subsidiaries to, amend or propose to amend its Certificate of Incorporation,
By-laws or other comparable charter or organizational documents.
(d) Change in Business. Axion shall not, nor shall it permit any of its
Subsidiaries to, make any change in the lines of business engaged in by (i) the
Retained Company or any of its Subsidiaries as of the date hereof or (ii) AHC or
any of its Subsidiaries as of the date hereof that would, based on the facts and
circumstances and conduct of the particular business, materially increase the
potential liability of the Retained Company or any of its Subsidiaries under
statutes or legal doctrines permitting the imposition of liability on a parent
corporation in respect of the liabilities of its subsidiaries.
(e) No Acquisitions. Axion shall not, nor shall it permit any of its
Subsidiaries to, (i) acquire (A) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or other
business organization or division thereof or (B) any material assets except as
provided in Section 5.01(h) or purchases of inventory in the ordinary course of
business consistent with past practice or (ii) make or agree to make any other
investment in any person (whether by means of loan, capital contribution,
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purchase of capital stock, obligations or other securities, purchase of all or
any integral part of the business of the person or any commitment or option to
make an investment or otherwise)(other than loans to Axion employees to fund the
purchase of Axion Common Stock in connection with the exercise of such
employee's respective Axion Options).
(f) No Dispositions. Axion shall not, nor shall it permit any of its
Subsidiaries to, sell, lease, license or otherwise dispose of any of its
material assets, except sales of inventory in the ordinary course of business
consistent with past practice.
(g) Indebtedness. Axion shall not, nor shall it permit any of its
Subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of Axion or such
Subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice under the Loan Agreement dated
as of December 2, 1994, between Bank of America National Trust and Savings
Association and the Partnership, as amended (the "Loan Agreement"), (ii) permit,
allow or suffer to exist any mortgage, Lien, encumbrance, easement, covenant,
right-of-way or other similar restriction of any nature whatsoever which would
have been required to be set forth in Schedules 4.01(q)(i), 4.01(q)(ii),
4.01(r)(i), 4.01(r)(ii), 4.01(s)(i), 4.01(s)(ii) or 4.01(v) if existing on the
date of this Agreement or (iii) cancel any material indebtedness (individually
or in the aggregate) or waive any claims or rights of substantial value.
(h) Capital Expenditures. Axion shall not, nor shall it permit any of its
Subsidiaries to, make or agree to make any capital expenditure or expenditures
which, in the aggregate, are in excess of $3,000,000 other than capital
expenditures that will constitute part of the Acquired Assets.
(i) Benefit Plans; Compensation. Axion shall not, nor shall it permit any
of its Subsidiaries to, (i) adopt or amend any Benefit Plan or collective
bargaining
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agreement, (ii) grant to any executive officer or employee any increase in
compensation or benefits or (iii) amend the Oncology Therapeutics Network
Corporation Officers Severance Plan to add any additional persons to the List of
Participants attached as Schedule A to such Plan; provided, however, that Axion
may, and may permit its Subsidiaries to, grant an executive officer or employee
of AHC an increase in compensation (but not including benefits) so long as
immediately following the Effective Time neither the Retained Company nor any of
its Subsidiaries has any direct or indirect liability whatsoever resulting from
such change or increase.
(j) Accounting Policies. Axion shall not, nor shall it permit any of its
Subsidiaries to, change any of its accounting principles, practices, policies or
procedures, except such changes as may be required by GAAP.
(k) Affiliate Transactions. Except as disclosed in Schedule 5.02(k) and for
(i) the Preference Amount distributed pursuant to Section 2.2 of the
Distribution Agreement and (ii) the intercompany transactions between Axion and
its current Subsidiaries in the ordinary course of business consistent with past
practice of the type identified in Schedule 4.01(n)(iii), Axion shall not, nor
shall it permit any of its Subsidiaries to, pay, loan or advance any amount to,
or sell, transfer or lease any of its assets or enter into any agreement with
Axion or any of its Subsidiaries or affiliates (including OnCare and its
Subsidiaries).
(l) Maintenance of Properties. Axion shall, and shall cause the Retained
Company and its Subsidiaries to, maintain and preserve, consistent with past
practice, in good repair, working order and condition all property material to
the Retained Business and will timely make or cause to be timely made all
appropriate repairs, renewals and replacements thereof, consistent with past
practice.
(m) Real Property Matters. Except as set forth in Schedule 5.01(m), Axion
shall not, nor shall it permit any of its Subsidiaries to, (i) enter into any
lease of real property, except any renewals of existing leases in the ordinary
course of business with respect to which BMS shall have the right to participate
and the terms and conditions of which shall be approved by BMS (which approval
shall not be unreasonably withheld) or (ii) modify, amend, terminate or permit
the lapse of any lease of, or reciprocal easement
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agreement, operating agreement or other material agreement relating to, real
property (except modifications or amendments associated with renewals of
existing leases in the ordinary course of business with respect to which BMS
shall have the right to participate).
(n) Material Contracts. Axion shall not, nor shall it permit any of its
Subsidiaries to, (i) enter into any Contract that is required to be assigned to
any of the Retained Companies or to AHC or OPUS Sub in connection with the
transactions contemplated in the Distribution Agreement unless such Contract may
be so assigned without any liability to the Retained Company or any of its
Subsidiaries or the consent of any third party or (ii) enter into, terminate or
modify in any material respect any material Contract other than in the ordinary
course of business consistent with past practice.
(o) Agreements. Axion shall not, nor shall it permit any of its
Subsidiaries to, agree, whether in writing or otherwise to take any of the
actions prohibited by this Section 5.01.
SECTION 5.02. Additional Covenants of Axion. During the period from the
date of this Agreement and continuing to the Effective Time, Axion agrees as to
itself and its Subsidiaries that, except as expressly provided for in the
Documents:
(a) Actions Affecting the Contributions, the Distribution or the Merger.
Notwithstanding the fact that such action might otherwise be permitted pursuant
to this Article V, Axion shall not, nor shall it permit any of its Subsidiaries
to, take any action that would or is reasonably likely to result in (i) any of
the conditions to the Merger set forth in Article VII not being satisfied, (ii)
any of the representations and warranties of Axion set forth in this Agreement
that are qualified as to materiality becoming untrue or (iii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect, or that would materially impair the ability of Axion to
consummate the Contributions or the Distribution in accordance with the terms of
the Distribution Agreement or the Merger in accordance with the terms hereof or
would materially delay such consummation or that would, to the knowledge of
Axion, disqualify the Distribution as a tax-free spinoff within the meaning of
Section 355 of the Code
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or disqualify the Merger as a tax-free reorganization under Section 368(1)(B)
of the Code.
(b) Intercompany Transactions. Axion shall (i) not engage in or allow
transfers of assets or liabilities or engage or enter into other transactions
between (A) the Retained Company and its Subsidiaries, on the one hand, and (B)
(I) AHC and its Subsidiaries, (II) OnCare and its Subsidiaries or (III) any
affiliate of AHC or OnCare, on the other hand, except as expressly contemplated
hereby and by the other Documents, (ii) abide and cause AHC and its Subsidiaries
to abide by their respective obligations under the Documents and (iii) not
terminate or amend, or waive compliance with any obligations under, the
Documents (other than the waiver by Axion of the conditions to its obligations
to close under Sections 7.01 and 7.03 of this Agreement and other than by
termination of this Agreement by Axion in accordance with the provisions of
Section 8.01) without the consent of BMS which consent can be withheld in its
sole discretion.
(c) Advice of Changes; Filings. Axion shall promptly advise BMS orally and
in writing of any change or development or combination of changes or
developments that would cause the representation in Section 4.01(g) to be
untrue. Axion will promptly provide BMS (or its counsel) copies of all filings
made by Axion with any Federal, state or foreign Governmental Entity in
connection with the Documents and the transactions contemplated hereby and
thereby.
(d) Insurance. Axion shall keep, or cause to be kept, all insurance
policies set forth in Schedule 4.01(w), or suitable replacements therefor, in
full force and effect through the close of business on the Closing Date. Axion
shall, and shall cause its Subsidiaries to, use its reasonable best efforts to
renew the insurance policies set forth in Schedule 4.01(w), or suitable
replacements therefor, maintained with respect to Axion and its Subsidiaries and
their respective assets and properties upon expiration or termination of such
policies on a month-to-month basis.
(e) Resignations. On the Closing Date, Axion shall cause to be delivered to
BMS duly signed resignations (from the applicable board of directors), effective
immediately after the Closing, of all directors of the Retained Company and each
of its Subsidiaries and shall take
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such other action as is necessary to accomplish the foregoing.
(f) Supplemental Disclosure. (i) From the date hereof through the Closing,
Axion shall give prompt notice to BMS of (A) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement or any other Document to
be untrue or inaccurate in any material respect and (B) any material failure of
Axion or any of its Subsidiaries or affiliates, or of any of its stockholders or
holders of Axion Options, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement or any
other Document; provided, however, that such disclosure shall not be deemed to
cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Axion shall promptly notify BMS of any default, the
threat or commencement of any action, or any development that occurs before the
Closing that could in any way materially affect the Retained Business, the
Retained Company and its Subsidiaries or AHC and its Subsidiaries. Axion shall
have the continuing obligation until the Closing to supplement or amend the
Schedules hereto on a monthly basis with the final supplement or amendment to
such Schedules to occur not later than two business days prior to the Closing.
(ii) Axion shall promptly notify BMS of and furnish BMS any information it
may reasonably request with respect to, the occurrence to Axion's actual
knowledge of any event or condition or the existence to Axion's actual knowledge
of any fact that would cause any of the conditions to BMS's obligation to
consummate the Merger and the other transactions contemplated hereby not to be
fulfilled.
(g) Exclusivity. (i) Axion shall, and shall direct and use its best efforts
to cause its officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any parties that may be
ongoing with respect to a Acquisition Proposal (as hereinafter defined). Axion
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly, (A) solicit, initiate or knowingly encourage (including by way of
furnishing information), or take any other action
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designed or reasonably likely to facilitate, any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal or (B) participate in any discussions or negotiations
regarding any Acquisition Proposal. Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by any director or executive officer of Axion or any of its
Subsidiaries, whether or not such person is purporting to act on behalf of Axion
or any of its Subsidiaries or otherwise, shall be deemed to be a breach of this
Section 5.02(g) by Axion. For purposes of this Agreement, "Acquisition Proposal"
means any inquiry, proposal or offer from any person with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of
all or any significant portion of the assets or any equity securities of, the
Retained Business, other than the transactions contemplated by this Agreement,
or any other transaction the consummation of which could reasonably be expected
to impede, interfere with, prevent or materially delay the Merger or which would
reasonably be expected to dilute materially the benefits to BMS of the
transactions contemplated by this Agreement and the other Documents.
(ii) Neither the Board of Directors of Axion nor any committee thereof
shall (A) withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to BMS, the approval or recommendation by such Board of Directors
or such committee of the Merger or this Agreement, (B) approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal or (C) cause
Axion to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Acquisition Proposal.
(iii) In addition to the obligations of Axion set forth in paragraphs (i)
and (ii) of this Section 5.02(g), Axion shall immediately advise BMS orally and
in writing of any request for information or of any Acquisition Proposal, the
material terms and conditions of such request or Acquisition Proposal and the
identity of the person making such request or Acquisition Proposal. Axion will
keep BMS fully informed of the status and details (including amendments or
proposed amendments) of any such request or Acquisition Proposal.
SECTION 5.03. Covenants of BMS. During the period from the date of this
Agreement and continuing to the
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Effective Time, BMS agrees as to itself and its subsidiaries that, except to the
extent that Axion shall otherwise consent in writing with such consent to be
within Axion's sole discretion:
(a) Actions Affecting the Merger. Notwithstanding the fact that such action
might otherwise be permitted pursuant to this Article V, BMS shall not, and
shall not permit any of its Subsidiaries to, take any action that would or could
reasonably be likely to result in (i) any of the conditions to the Merger set
forth in Article VII not being satisfied, (ii) any of the representations and
warranties of BMS set forth in this Agreement that are qualified as to
materiality becoming untrue, or (iii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect or materially
impairing the ability of BMS to consummate the Merger in accordance with the
terms hereof.
ARTICLE VI
Additional Agreements
SECTION 6.01. Preparation of Form S-4, Required AHC Documents and the Proxy
Statement; Stockholders' Meeting. (a)(i) As soon as practicable following the
date of this Agreement and in any event within one business day after the date
hereof, Axion and BMS shall file with the SEC the Form S-4. Each of Axion and
BMS shall use its best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. Axion will use its
best efforts to cause the Proxy Statement to be mailed to Axion's stockholders
as promptly as practicable after the Form S-4 is declared effective under the
Securities Act. BMS shall also take any action (other than qualifying to do
business in any jurisdiction in which it is not now so qualified) required to be
taken under any applicable state securities laws in connection with the issuance
of BMS Common Stock in the Merger, and Axion shall furnish all information
concerning Axion and the holders of Axion Common Stock as may be reasonably
requested in connection with any such action.
(ii) In addition, as soon as practicable and in any event within two
business days following the date hereof, Axion shall request no-action relief
from the SEC with respect to the distribution of AHC Preferred Stock to
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the holders of Axion Common Stock on a pro rata basis without registration under
the Securities Act (the "No-Action Request"). In the event such no-action
relief is not obtained from the SEC, (A) (I) each of Axion and BMS shall use its
best efforts to (a) cause the Application to be made to the Commissioner within
ten business days after Axion has been advised orally or in writing that
no-action relief will not be granted, (b) diligently respond as promptly as
practicable to all requests and comments regarding the Application within a
reasonably prompt period after receipt by the applicants or their respective
counsel of any such requests or comments and (c) cause a hearing to be held and
the Commissioner to issue a permit to approve the distribution of the AHC
Preferred Stock and, if necessary, the BMS Common Stock to be issued in the
Distribution and (II) Axion shall use its best efforts to provide, and cause its
representatives to provide, the information with respect to Axion and its
Subsidiaries required to be included in the Application to the applicant or
applicants within five business days after Axion has been finally advised orally
or in writing that no-action relief will not be granted or (B) Axion shall use
its best efforts to (I) cause the Form S-1 to be filed within ten business days
after Axion has been advised orally or in writing that no-action relief will not
be granted and (II) diligently respond to all SEC comments to the Form S-1
within five business days after receipt by Axion or its counsel of any initial
SEC comments to the Form S-1 and within a reasonably prompt period under the
circumstances after receipt by Axion or its counsel of any subsequent SEC
comments to the Form S-1. Axion shall cause the prospectus included in the Form
S-1 to be mailed to Axion's stockholders as promptly as practicable after the
Form S-1 is declared effective under the Securities Act. If neither the Form S-1
nor the Application is required for the Distribution, Axion shall cause the
Information Statement to be distributed to Axion's stockholders no later than
the time at which the Proxy Statement is delivered to Axion's stockholders.
(b) Axion shall within two business days following the date on which the
Form S-4 is declared effective, duly call and give notice of a meeting of its
stockholders (the "Stockholders' Meeting") with such Stockholders' Meeting to be
held 20 business days after the date such meeting is called for the purpose of
(i) the election by the holders of not less than 66-2/3% of the outstanding
shares of Axion Preferred Stock voting together as a class to convert all
outstanding shares of Axion
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Preferred Stock into Axion Common Stock in accordance with the Certificate of
Incorporation of Axion, (ii) the approval and adoption of this Agreement by the
Requisite Common Stockholders voting together as a single class and the
Requisite Preferred Stockholders voting together as a single class and (iii)
taking any other action necessary or appropriate in connection with the
transactions contemplated hereby or by the other Documents. Without limiting the
generality of the foregoing, Axion agrees that its obligations pursuant to this
Section 6.01(b) shall not be affected by (i) the commencement, public proposal,
public disclosure or communication to Axion of any Acquisition Proposal or (ii)
the withdrawal or modification by the Board of Directors of Axion of its
approval or recommendation of this Agreement or the Merger.
SECTION 6.02. Accountants' Letters. Each party hereto agrees to use its
reasonable best efforts to cause to be delivered to the other party hereto and
their respective directors a letter of its independent accountants, dated the
date on which the Form S-4 shall become effective, in form and substance
customary for "comfort" letters delivered by independent accounts in connection
with registration statements similar to the Form S-4.
SECTION 6.03. Access to Information; Confidentiality. (a) Upon reasonable
notice, and except as may otherwise be required by applicable law, Axion shall,
and shall cause each of its Subsidiaries to, afford to BMS and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
BMS, reasonable access during normal business hours during the period prior to
the Effective Time to (i) except with respect to AHC and other matters related
solely to the Acquired Businesses (as defined in the Distribution Agreement),
all their respective properties, books, contracts, commitments, personnel and
records and (ii) with respect to AHC and other matters related solely to the
Acquired Businesses, to all its properties, books, contracts, commitments,
personnel and records of AHC, as BMS may reasonably request for the express
purpose of monitoring compliance with and assuring proper implementation of the
transactions contemplated by the Documents and complying with applicable
securities laws. During such period, Axion shall, and shall cause each of its
Subsidiaries to, furnish promptly to BMS all other information concerning the
business, properties and personnel of the Retained Business as BMS may
reasonably request.
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(b) During the period prior to the Effective Time, BMS shall furnish
promptly to Axion a copy of each report, schedule, registration statement and
other document filed by it during such period pursuant to the requirements of
Section 13(a) and 15(d) of the Exchange Act.
(c) (i) On or prior to August 25, 1996, Axion will furnish to BMS a copy of
(A) the unaudited consolidated balance sheet of Axion and its Subsidiaries as of
June 30, 1996, and the related unaudited consolidated statements of operations
and cash flows of Axion and its Subsidiaries for the six-month period then
ended, together with the notes to such financial statements, certified by the
chief financial officer of Axion as complying with the requirements set forth in
the next sentence, (B) the consolidated balance sheet of the Retained Business
as of June 30, 1996, and the related unaudited consolidated statement of
operations of the Retained Business for the six-month period then ended
certified by the chief financial officer of Axion as complying with the
requirements set forth in the next sentence and (C) the unaudited combined
balance sheet of the Acquired Business as of June 30, 1996, and the related
unaudited combined statements of operations and accumulated deficit and net
capital deficiency and cash flows of the Acquired Business for the six-month
period then ended, together with the notes to such financial statements,
certified by the chief financial officer of Axion as complying with the
requirements set forth in the next sentence. Each of the financial statements
referred to in clauses (A), (B) and (C) above will comply as to form in all
material respects with applicable accounting requirements will be prepared in
accordance with GAAP applied on a consistent basis during the period involved
(except for the absence of notes thereto) and will fairly present the
consolidated financial position of the relevant company and its Subsidiaries or
business as of the respective dates thereof and the consolidated results of
their respective operations and cash flows for the six-month period then ended
(subject to normal, recurring year-end audit adjustments). Such financial
statements and notes thereto shall be furnished for use in the Form S-4, Proxy
Statement or the Information Statement, as applicable, and shall in each case
(i) be consistent with the financial statements included in the Form S-4 filed
with the SEC pursuant to the first sentence of Section 6.01(a)(i) and (ii) be
accompanied by management's discussion and analysis of financial condition and
result of operations for the six-month period
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ended June 30, 1996, including appropriate comparisons to the six-month period
ended June 30, 1995.
(ii) During the period prior to the Effective Time, Axion will furnish to
BMS on or prior to 30 days after the end of each month commencing with the month
ended July 31, 1996, a copy of (i) each monthly unaudited consolidated balance
sheet of Axion and its Subsidiaries and the related unaudited consolidated
statements of operations and cash flows for such month, together with the notes
to such financial statements, (ii) each monthly unaudited consolidated balance
sheet of the Retained Company and its Subsidiaries and the related unaudited
consolidated statements of operations and cash flows for such month, together
with the notes to such financial statements, (iii) each monthly unaudited
consolidated balance sheet of AHC and its Subsidiaries and the related unaudited
consolidated statements of operations and cash flows for such month, together
with the notes to such financial statements and (iv) each monthly unaudited
balance sheet of the Partnership and the related unaudited statements of
operations and cash flows for such month, together with the notes to such
financial statements.
(d) All such information as may be furnished by or on behalf of Axion or
any of its Subsidiaries to BMS or its representatives pursuant to this Section
6.03 shall be subject to the terms of the Confidentiality Agreement dated as of
June 20, 1996 between Axion and BMS (the "Confidentiality Agreement").
SECTION 6.04. Reasonable Best Efforts. Subject to the terms and conditions
of this Agreement, each of Axion and BMS shall use its reasonable best efforts
to cause the Closing to occur. Without limiting the foregoing, each of Axion and
BMS shall use its reasonable best efforts to cause the Closing to occur on or
prior to September 30, 1996.
SECTION 6.05. Legal Conditions to Distribution and Merger; Legal
Compliance. (a) BMS shall use reasonable best efforts to comply promptly with
all legal and regulatory requirements which may be imposed on itself or its
Subsidiaries with respect to the Merger (which actions shall include furnishing
all information required in connection with approvals of or filings with
Governmental Entities required to be made or obtained by BMS or its
Subsidiaries). Subject to the terms and conditions hereof, BMS shall, and shall
cause its Subsidiaries to, promptly use
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its reasonable best efforts to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or requirement
imposed by, any Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by BMS or any of its Subsidiaries in
connection with the Merger or the taking of any action contemplated thereby or
by this Agreement or the other Documents; provided, however, that for purposes
of this Section 6.05, the "reasonable best efforts" of BMS shall not require BMS
to agree to any prohibition, limitation or other requirement of the type set
forth in clauses (ii), (iii) or (iv) of Section 7.02(f).
(b) Axion shall use reasonable best efforts to comply promptly with all
legal and regulatory requirements which may be imposed on itself or its
respective Subsidiaries with respect to the Contributions, the Distribution and
the Merger (which actions shall include furnishing all information required in
connection with approvals of or filings with Governmental Entities required to
be made or obtained by Axion or its Subsidiaries). Subject to the terms and
conditions hereof, Axion shall, and shall cause its Subsidiaries to, promptly
use its reasonable best efforts to obtain any consent, authorization, order or
approval of, or any exemption by, and to satisfy any condition or requirement
imposed by, any Governmental Entity or other public or private third party,
required to be obtained, made or satisfied by Axion or any of its Subsidiaries
in connection with the Contributions, the Distribution or the Merger or the
taking of any action contemplated thereby or by this Agreement or the other
Documents. Axion agrees that it shall use its reasonable best efforts to take,
and to cause its Subsidiaries to take, such actions as are necessary to assure
material compliance by the Retained Company and its Subsidiaries with all
applicable legal and regulatory requirements which may be imposed with respect
to the Contributions, the Distribution or the Merger relating to employment and
benefits matters and other applicable governmental regulations (and in this
connection will have due regard to any reasonable request of BMS as to what, if
any, such actions should be taken) which may be imposed with respect to the
Contributions, the Distribution or the Merger or the taking of any action
contemplated thereby or by this Agreement or the other Documents.
Notwithstanding anything to the contrary set forth in this Agreement or any
other Document, in connection with obtaining any consent, waiver or release of,
by or from any third party as contemplated by this Section 6.05(a) at
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or prior to the Effective Time, Axion (i) shall not cause or permit the
Partnership to expend money or to offer or grant any financial accommodation and
(ii) shall not, and shall not permit OTNC or OPUS, to offer or grant any
financial accommodation in respect of the Retained Business or any Retained
Asset or that would create or result in a Retained Liability.
(c) Each of Axion and BMS will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them or any of their respective Subsidiaries in connection with the
Contributions, the Distribution or the Merger.
(d) Nothing herein shall obligate any party to take any action pursuant to
the foregoing if the taking of such action or such compliance or the obtaining
of such consent, authorization, order, approval or exemption is likely, in such
party's reasonable opinion, (i) to be materially burdensome to such party and
its Subsidiaries taken as a whole or to impact in a materially adverse manner
the economic or business benefits of the transactions contemplated by this
Agreement or the other Documents so as to render inadvisable the consummation of
the Contributions, the Distribution or the Merger or (ii) to result in the
imposition of a condition or restriction on such party or on the Surviving
Corporation of the type referred to in Section 7.01(e). Nothing herein shall
obligate BMS to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption is likely, in BMS's reasonable opinion, to require
BMS to agree to any prohibition, limitation or other requirement of the type set
forth in clauses (ii), (iii) or (iv) of Section 7.02(f). Each of BMS and Axion
shall promptly cooperate with and furnish information to the other in connection
with any such burden suffered by, or requirement imposed upon, any of them or
any of their respective Subsidiaries in connection with the foregoing.
SECTION 6.06. Options. Immediately prior to the Distribution, all options,
warrants or other rights to acquire Axion Common Stock ("Axion Options") shall
be fully vested, and all such Axion Options shall have been exercised or
canceled. No Axion Options shall be assumed by the Surviving Corporation.
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SECTION 6.07. Fees and Expenses. Except as provided in Section 2.01(b), all
out-of-pocket fees and expenses incurred in connection with the Merger, the
Distribution or the consummation of any of the transactions contemplated by this
Agreement and the Documents and the negotiation, preparation, review and
delivery of the agreements contemplated hereby and thereby, including all fees
and expenses of accountants, legal counsel, investment bankers and other
advisors shall be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated, except that expenses incurred in connection with
printing and mailing the Proxy Statement and the Form S-4 shall be shared
equally by BMS and Axion. Expenses incurred in connection with the Required AHC
Documents shall be paid by Axion.
SECTION 6.08. Pre-Signing Transactions. (a) On or prior to the date hereof,
mutually acceptable (i) employment agreements (the "Employment Agreements")
shall have been executed and delivered by each of James W. Adams, Bret Brodowy,
Michael G. Cunningham, Warren M. Dodge, Lynn B. Hammerschmidt and David L.
Levison in substantially the forms set forth in Exhibits 6.08(a)(1)-(6) and (ii)
non-competition agreements (the "Non-Competition Agreements") shall have been
executed and delivered by each of AHC and its Subsidiaries, OnCare and its
Subsidiaries, Michael D. Goldberg and Garrett J. Roper in substantially the form
set forth in Exhibit 6.08(a).
(b) On or prior to the date hereof, a stockholders agreement in
substantially the form set forth in Exhibit 6.08(b) shall have been executed and
delivered to BMS by each of the stockholders listed in Schedule 6.08(b).
(c) On or prior to the date hereof, Axion and BMS shall cause the amendment
of the Partnership Agreement substantially in the form of Exhibit 6.08(c) (the
"Partnership Agreement Amendment").
(d) On or prior to the date hereof, counsel to Axion shall have provided to
BMS and its counsel drafts of each of the following: the No-Action Request; the
Information Statement; and the disclosure to be included in the Form S-4 with
respect to Axion and its Subsidiaries (including AHC and its Subsidiaries).
(e) On or prior to the date hereof (i) BMS shall have received an opinion,
based on appropriate
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representations of Axion and BMS, of its counsel, Cravath, Swaine & Moore, to
the effect that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a)(1)(B) of the Code,
(ii) Axion shall have received an opinion, based on appropriate representations
of Axion and BMS, of its counsel, Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, to the effect that the Merger will be treated for Federal income
tax purposes as a tax-free reorganization within the meaning of Section
368(a)(1)(B) of the code and (iii) BMS, Axion and AHC shall have received an
opinion dated as of the date hereof of Ernst & Young LLP, tax advisors to Axion,
substantially in the form of Exhibit 6.08(e).
(f) On or prior to the date hereof, each of OnCare and the Partnership
shall have executed a letter substantially in the form of Exhibit 6.08(f).
SECTION 6.09. Public Announcements. BMS and BMS Sub, on the one hand, and
Axion, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement and the Distribution Agreement, including the Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement and the other
Documents shall be as set forth in Exhibit 6.09.
SECTION 6.10. Affiliates. Prior to the Closing Date, Axion shall deliver to
BMS a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of Axion, "affiliates" of Axion for
purposes of Rule 145 under the Securities Act. Axion shall use its reasonable
best efforts to cause each such person to deliver to BMS on or prior to the
Closing Date a written agreement substantially in the form attached as Exhibit
6.10. If any such person refuses to provide such Agreement, BMS may place
appropriate legends on the BMS Certificates evidencing the shares of BMS Common
Stock to be received by such person and to issue appropriate stop transfer
orders to the transfer agent.
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SECTION 6.11. Stock Exchange Listing. BMS shall use its reasonable best
efforts to cause the shares of BMS Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
SECTION 6.12. Tax Representation Letters. For purposes of the tax opinions
to be delivered pursuant to Section 6.08(e), (a) BMS will deliver a
representation letter substantially in the form of Exhibit 6.12(a) dated as of
the date hereof and as of the Closing Date, (b) Axion will deliver a
representation letter substantially in the form of Exhibit 6.12(b) dated as of
the date hereof and as of the Closing Date and (c) Axion will cause stockholders
reasonably satisfactory to BMS to deliver a representation letter substantially
in the form of Exhibit 6.12(c) dated as of the date hereof, in each case to
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to Axion,
to Ernst & Young LLP, tax advisors to Axion, and to Cravath, Swaine & Moore,
counsel to BMS.
SECTION 6.13. Transfer and Assumption Documentation. (a) All deeds, bills
of sale, stock powers, certificates of title, assignment of leases and contracts
and other instruments of delivery necessary to evidence such distribution,
grant, assignment, transfer, conveyance, contribution and delivery, executed and
delivered in accordance with Section 5.1 of the Distribution Agreement shall be
in form and substance satisfactory to BMS and its counsel. Axion shall cause
each of the Retained Companies and any entity that will be an affiliate of any
of the Retained Companies immediately after giving effect to the transactions
set forth in the Distribution Agreement to be released, pursuant to
documentation reasonably satisfactory to BMS and its counsel, from any and all
Liens arising under any Scheduled Contract that constitutes an Acquired Asset
from and after the Effective Time.
SECTION 6.14. EDS Contract. Each of Axion and BMS agree to use its
reasonable best efforts to negotiate and enter into (or cause to be entered
into) separate agreements with Electronic Data Systems Corporation ("EDS") with
respect to certain business and information systems-related services utilized
by the Retained Companies and AHC Companies, respectively, which separate
agreements would supercede and replace the Agreement for Information Technology
Services dated as of July 29, 1993, between EDS and OPUS, as amended (the "EDS
Contract"), on substantially
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the same terms and conditions as are set forth in the EDS Contract.
ARTICLE VII
Conditions Precedent
SECTION 7.01. Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The holders of not less than 66-2/3% of the
outstanding shares of Axion Preferred Stock voting together as a class shall
have elected to convert all outstanding Axion Preferred Stock into Axion Common
Stock in accordance with the Certificate of Incorporation of Axion, and the
Requisite Common Stockholders voting together as a single class shall have
approved and adopted this Agreement and the Requisite Preferred Stockholders
shall have approved and adopted this Agreement voting together as a single class
in accordance with the DGCL, other applicable law, the Certificate of
Incorporation and the By-laws of Axion.
(b) NYSE Listing. The shares of BMS Common Stock issuable to Axion's
stockholders pursuant to this Agreement shall have been approved for listing on
the NYSE, subject to official notice of issuance.
(c) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(d) Other Governmental Filings and Consents. All filings required to be
made prior to the Closing Date with, and all consents, approvals and
authorizations required to be obtained prior to the Closing Date from, any
Governmental Entity in connection with the execution, delivery and performance
of the Documents or the consummation of the Contributions, the Distribution, the
Merger and the other transactions contemplated by the Documents shall have been
made or obtained.
(e) No Injunctions or Restraints. (i) No temporary restraining order,
preliminary or permanent
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injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Merger shall
be in effect; provided, however, that each of the parties shall have used its
reasonable best efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as possible any such injunction or other order
that may be entered and (ii) no action, suit or other proceeding shall be
pending or, to the knowledge of Axion and BMS, threatened by any Governmental
Entity that, if successful, would restrict or prohibit the consummation of the
transactions contemplated in this Agreement or other Documents.
(f) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop
order.
(g) Required AHC Documents. Axion's No-Action Request shall have been
granted by the SEC, or in the event such no-action relief is not obtained either
(i) the Form S-1 shall have become effective under the Securities Act and shall
not be the subject of any stop order or proceedings seeking a stop order or (ii)
the Application shall have been made to the Commissioner, the hearing upon the
fairness of the terms and conditions of the issuance and exchange of the
securities shall have been held by the Commissioner, the Commissioner shall have
approved the terms and conditions of the issuance and exchange and the fairness
of such terms and conditions and a permit for the issuance and exchange of the
securities shall have been issued by the Commissioner.
(h) Consummation of the Transactions. The transactions contemplated by
Article III, including the Contributions and the Distribution, shall have become
effective in accordance with the terms of the Distribution Agreement and each of
the agreements contemplated thereby.
SECTION 7.02. Conditions to Obligations of BMS and BMS Sub. The obligations
of BMS and BMS Sub to effect the Merger are further subject to each of the
following conditions prior to the Closing Date, unless waived by BMS:
(a) Representations and Warranties. The representations and warranties of
Axion set forth in this Agreement and the other Documents that are qualified as
to materiality shall be true and correct, and the
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77
representations and warranties of Axion set forth in this Agreement that are not
so qualified shall be true and correct in all material respects, in each case as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date, except that the accuracy of representations and
warranties that by their terms speak as of the date of this Agreement or some
other date shall be determined as of such date, and BMS shall have received a
certificate signed on behalf of Axion by the chief executive officer and the
chief financial officer of Axion to such effect.
(b) Performance of Obligations of Axion. Each of Axion and its Subsidiaries
shall have performed in all material respects all obligations required to be
performed by it under this Agreement and the other Documents at or prior to the
Closing Date, and BMS shall have received a certificate signed on behalf of
Axion by the chief executive officer and the chief financial officer of Axion to
such effect.
(c) No Material Adverse Change. Since December 31, 1995, no event, change,
circumstance or development has occurred that has had, or could reasonably be
expected to have, a Retained Company Material Adverse Effect or an AHC Material
Adverse Effect.
(d) Documents. Each of the Documents shall have been executed substantially
in the forms attached as Exhibits hereto or, if not included as Exhibits, in the
form mutually agreed to as the parties thereto and BMS, as the case may be, by
the applicable parties thereto (other than BMS and its affiliates) and shall
have become effective in accordance with its terms and be in full force and
effect. Axion shall have delivered to BMS true, correct and complete copies of
each Document to which BMS is not a party.
(e) Tax Opinion. BMS shall have received (i) a letter of its counsel,
Cravath, Swaine & Moore, to the effect that they reaffirm the opinion furnished
pursuant to Section 6.08(e) and (ii) a letter of Axion's advisors, Ernst & Young
LLP, to the effect that they reaffirm the opinion furnished pursuant to Section
6.08(e), except in the case of each of the letters referred to in clauses (i)
and (ii), the specified date referred to shall be a date not more than five days
prior to Closing.
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78
(f) No Litigation. There shall not be pending or threatened any suit,
action or proceeding by any Governmental Entity or any other person, or before
any court or governmental authority, agency or tribunal, domestic or foreign, in
each case that has a reasonable likelihood of success, (i) challenging the
acquisition by BMS or BMS Sub of any shares of Axion Common Stock, seeking to
restrain or prohibit the consummation of the Merger, the Contributions and the
Distribution or any of the other transactions contemplated by this Agreement or
seeking to obtain from Axion, BMS or BMS Sub any damages that are material in
relation to the Retained Company and its Subsidiaries taken as a whole or AHC
and its Subsidiaries taken as a whole, (ii) seeking to prohibit or limit the
ownership or operation by BMS or BMS Sub, or to compel BMS or BMS Sub to dispose
of or hold separate any material portion, of the Retained Business, (iii)
seeking to impose limitations on the ability of BMS or BMS Sub to acquire or
hold, or exercise full rights of ownership of, any shares of Axion Common Stock,
including the right to vote the Axion Common Stock purchased by it on all
matters properly presented to the stockholders of Axion, (iv) seeking to
prohibit BMS or any of its Subsidiaries from effectively controlling in any
material respect the Retained Business or (v) which otherwise would have, or
could reasonably be expected to have, a Retained Company Material Adverse Effect
or an AHC Material Adverse Effect.
(g) Amendments to SEC Documents. Since the effective date of the Form S-4
or the date of the Proxy Statement or the date of the Information Statement, as
applicable, or in the event the No-Action Request is not granted by the SEC,
since the effective date of the Form S-1 or at the time the Application is filed
with the Commission, as applicable, no event with respect to Axion, any
Subsidiary of Axion or any security holder of Axion has occurred which should
have been set forth in an amendment to the Form S-4 or the Form S-1 or a
supplement to the Proxy Statement, the Information Statement or the Application
or an amendment or supplement to any other Required AHC Document which has not
been set forth in such an amendment or supplement.
(h) Third Party Consents. All consents and approvals of all persons (other
than Governmental Entities) required to be obtained prior to the Closing Date in
connection with the execution, delivery and performance of the Documents and the
consummation of the Contributions, the
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79
Distribution, the Merger and the other transactions contemplated by the
Documents and all releases referred to in Section 6.13 shall have been obtained
and shall be in full force and effect.
(i) No Bankruptcy Proceedings. No involuntary proceeding shall be commenced
or an involuntary petition shall be filed in a court of competent jurisdiction
seeking (i) relief in respect of Axion or any of its Subsidiaries, or of a
substantial part of the property or assets of Axion or any of its Subsidiaries,
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal or state bankruptcy, insolvency, receivership or
similar law, (ii) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for Axion or any of its
Subsidiaries or for a substantial part of their respective assets or (iii) the
winding up or liquidation of Axion or any of its Subsidiaries; and such
proceeding or petition shall continue undismissed for 30 days or an order or
decree approving or ordering any of the foregoing shall be entered. None of
Axion or any of its Subsidiaries shall have (i) voluntarily commenced any
proceeding or file any petition seeking relief under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law, (ii) consented to the
institution of, or failed to contest in a timely and appropriate manner, any
proceeding or the filing of any petition described above, (iii) applied for or
consented to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for Axion or any of its Subsidiaries or for a
substantial part of the property or assets of Axion or any of its Subsidiaries,
(iv) filed an answer admitting the material allegations of a petition filed
against it in any such proceeding, (v) made a general assignment for the benefit
of creditors, (vi) become unable, admit in writing its inability or failed
generally to pay its debts as they become due or (vii) taken any action for the
purpose of effecting any of the foregoing.
(j) Termination of Agreements. All existing arrangements between the
Surviving Corporation and its Subsidiaries on the one hand and OnCare and AHC
and their respective Subsidiaries and affiliates on the other hand shall be
terminated, including, but not limited to, termination of the Supply Agreement
dated January 1, 1996 between the Partnership and OnCare but excluding the AHC
and
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80
OnCare Supply Agreements and the AHC and OnCare Medstation Agreements.
(k) Conversion of Axion Preferred Stock; No Dissenters' Shares. Each issued
and outstanding share of Axion Preferred Stock shall have been converted into
fully paid and nonassessable shares of Axion Common Stock pursuant to and in
accordance with the terms of such Axion Preferred Stock. No Dissenters' Shares
shall be outstanding.
(l) Axion Options. All Axion Options shall have been exercised or canceled,
and no Axion Options shall be assumed by the Surviving Corporation.
(m) Indebtedness. Immediately prior to the Effective Time, there shall not
be outstanding any indebtedness for borrowed money, or any guarantees in respect
of any indebtedness for borrowed money of any third party, in respect of which
the Retained Company or any of its Subsidiaries is obligated, other than
indebtedness in an aggregate principal amount of $35,617,000, consisting only of
outstandings under the Loan Agreement, and BMS shall have received a certificate
signed on behalf of Axion by the chief executive officer and chief financial
officer of Axion to such effect. Immediately prior to the Effective Time, (i) a
certificate of a vice president of Bank of America National Trust and Savings
Association shall be executed and delivered to BMS certifying that the aggregate
principal amount outstanding under the Loan Agreement as of such date does not
exceed $35,617,000 and (ii) an amendment or waiver of the Loan Agreement shall
be executed and delivered permitting the Merger and the other transactions
contemplated by the Documents.
(n) Opinion. BMS and BMS Sub shall have received an opinion dated the
Closing Date of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP,
counsel to Axion, with respect to such matters as BMS and its counsel shall
reasonably request in form and substance reasonably satisfactory to BMS and its
counsel.
SECTION 7.03. Conditions to Obligation of Axion. The obligations of Axion
to effect the Merger are further subject to each of the following conditions
prior to the Closing Date, unless waived by Axion:
(a) Representations and Warranties. The representations and warranties of
BMS set forth in this
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81
Agreement and the other Documents that are qualified as to materiality shall be
true and correct, and the representations and warranties of BMS set forth in
this Agreement that are not so qualified shall be true and correct, in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date, except that the
accuracy of representations and warranties that by their terms speak as of the
date of this Agreement or some other date shall be determined as of such date,
and Axion shall have received a certificate signed on behalf of BMS by an
authorized officer of BMS to such effect.
(b) Performance of Obligations of BMS and BMS Sub. Each of BMS and BMS Sub
shall have performed in all material respects all obligations required to be
performed by it under this Agreement and the other Documents at or prior to the
Closing Date, and Axion shall have received a certificate signed on behalf of
BMS by an authorized officer of BMS to such effect.
(c) No Material Adverse Change. Except as disclosed in any BMS SEC
Documents filed and publicly available on or prior to the date of this
Agreement, since December 31, 1995, no event, change, circumstance or
development has occurred that has had, or could reasonably be expected to have,
a BMS Material Adverse Effect.
(d) Documents. Each of the Documents to which BMS or BMS Sub is a party
shall have been executed substantially in the forms attached as Exhibits hereto
or, if not included as Exhibits, in the form mutually agreed to by the parties
thereto and Axion, as the case may be, by the applicable parties thereto (other
than Axion and its affiliates) and shall have become effective in accordance
with its terms and be in full force and effect. BMS shall have delivered to
Axion, true, correct and complete copies of each Document to which Axion is not
a party.
(e) Tax Opinion. (i) Axion shall have received a letter of its counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, to the effect
that they reaffirm the opinion furnished pursuant to Section 6.08(e) and (ii)
Axion and AHC shall have received a letter of Axion's advisors, Ernst & Young
LLP, to the effect that they reaffirm the opinion furnished pursuant to Section
6.08(e), except in the case of each of the letters referred to in
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82
clauses (i) and (ii), the specified date referred to shall be a date not more
than five days prior to Closing.
(f) Amendment to SEC Documents. Since the effective date of the Form S-4 or
the Proxy Statement, as applicable, no event with respect to BMS, any Subsidiary
of BMS or any security holder of BMS has occurred which should have been set
forth in an amendment to the Form S-4 or a supplement to the Proxy Statement
which as not been set forth in such an amendment or supplement.
(g) Opinion. Axion and AHC shall have received an opinion dated the Closing
Date of Cravath, Swaine & Moore, counsel to BMS, with respect to such matters as
Axion and its counsel shall reasonably request in form and substance reasonably
satisfactory to Axion and its counsel.
ARTICLE VIII
Termination, Amendment and Waiver
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of Axion:
(a) by mutual written consent of BMS, BMS Sub and Axion;
(b) by either BMS or Axion
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of
Axion shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
October 31, 1996, unless the failure to consummate the Merger is the
result of a wilful and material breach of this Agreement by the party
seeking to terminate this Agreement; provided, however, that the
passage of such period shall be tolled for any part thereof (but in no
event beyond December 31, 1996) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the
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83
Merger or the calling or holding of the Stockholders Meeting; or
(iii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable;
(c) by Axion if BMS or BMS Sub shall have failed to comply in any
material respect with any of the covenants or agreements contained in this
Agreement or any other Document to be performed by BMS or BMS Sub at or
prior to the time of termination, which breach shall not have been cured
within 30 days following written notice of such breach; or
(d) by BMS if Axion or any of its Subsidiaries shall have failed to
comply in any material respect with any of the covenants or agreements
contained in this Agreement or any other Document to be performed by Axion
or any of its Subsidiaries at or prior to the time of termination, which
breach shall not have been cured within 30 days following written notice of
such breach.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement by either Axion or BMS as provided in Section 8.01, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of BMS, BMS Sub or Axion, other than the provisions of
Section 6.02, Section 6.09, this Section 8.02 and Article IX, all of which shall
survive such termination and except to the extent that such termination results
from the wilful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement, the
Distribution Agreement or any agreement contemplated thereby.
SECTION 8.03. Amendment. This Agreement may be amended by the parties at
any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of Axion; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such stockholders without the further approval of such
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84
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
ARTICLE IX
General Provisions
SECTION 9.01. Survival of Representations and Warranties. The
representations, warranties and covenants in this Agreement or in any instrument
delivered pursuant to this Agreement (other than the representations, warranties
and covenants relating to Taxes in Section 4.01(j)) shall survive the Closing
for purposes of the Indemnification Agreement and shall terminate upon the
termination of the indemnification obligations as set forth in the
Indemnification Agreement. Representations, warranties and covenants relating to
Taxes shall survive the Closing for purposes of the Tax Matters Agreement and
shall terminate at the close of business on the sixtieth day following the
expiration of the applicable statute of limitations.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to BMS or BMS Sub, to
Bristol-Myers Squibb Company
345 Park Avenue
New York, New York 10154
Attention: Robert E. Ewers, Jr.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, New York 10019
Attention: Susan Webster
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85
(b) if to Axion, to
Axion Inc.
1111 Bayhill Drive, Suite 125
San Bruno, California 94066
Attention: Garrett J. Roper
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, California 94304
Attention: Steven M. Spurlock
SECTION 9.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person; for purposes of this
definition OnCare and its Subsidiaries shall be considered affiliates of
Axion prior to the Effective Time;
(b) "Documents" mean this Agreement, the Distribution Agreement, the
Indemnification Agreement, the Tax Matters Agreement, the Escrow Agreement,
the Transitional Services Agreement, each of the AHC and OnCare Supply
Agreements, each of the AHC and OnCare Medstation Agreement, each of the
Non-Competition Agreements, each of the Employment Agreements, the License
Agreement and all the transfer and assumption documentation executed
pursuant to Section 5.1 of the Distribution Agreement.
(c) "knowledge" of any person means what such person knows or could
reasonably be expected to know after due inquiry (which shall consist of
the review of such documents and the consideration of such matters and the
making of such other inquiries as such person reasonably deems appropriate
in its judgment under the circumstances);
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86
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
(e) a "Subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; for purposes of this definition, the
Partnership shall be considered a Subsidiary of each of Axion and the
Retained Company.
SECTION 9.04. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 9.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of, which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement, the Documents, the Confidentiality Letter dated as of June 20, 1996
and the agreements referred to herein and therein and required to be delivered
in connection with the transactions contemplated by the Documents (a) constitute
the entire agreement, and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter of
this Agreement and (b) except for the provisions of Article II are not intended
to confer upon any person other than the parties any rights or remedies.
SECTION 9.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that
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87
might otherwise govern under applicable principles of conflicts of laws thereof.
SECTION 9.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that BMS Sub may assign, in its
sole discretion, any of or all its rights, interests and obligations under this
Agreement to BMS or to any direct or indirect wholly owned Subsidiary of BMS,
but no such assignment shall relieve BMS Sub of any of its obligations under
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 9.09. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, and do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
SECTION 9.10. Severability. If any provision of this Agreement or the
Documents or the application thereof to any person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions thereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated thereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
SECTION 9.11. Schedules; Exhibits. All Schedules and Exhibits attached
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Capitalized terms used in any Schedule
or Exhibit but not otherwise defined therein shall have the respective meanings
assigned to such terms in this Agreement.
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88
SECTION 9.12. Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court
located in the State of Delaware or in Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Delaware or
any Delaware state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated by
this Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 9.13. Waiver, Remedies. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 8.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. No delay on the party of either BMS or Axion in
exercising any right, power or privilege hereunder will operate as a waiver
thereof, nor will any waiver on the part of either BMS or Axion of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. Unless otherwise
provided, the rights and remedies herein provided are cumulative and are
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89
not exclusive of any rights or remedies which the parties may otherwise have at
law or in equity.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
BRISTOL-MYERS SQUIBB COMPANY,
by
/s/ Michael J. Howerton
--------------------------
Name: Michael J. Howerton
Title: Vice President
OTN ACQUISITION SUB INC.,
by
/s/ Michael J. Howerton
--------------------------
Name: Michael J Howerton
Title: Treasurer
AXION INC.,
by
/s/ Garrett J. Roper
--------------------------
Name: Garrett J. Roper
Title: Vice President and
Chief Financial
Officer
<PAGE>
<PAGE>
APPENDIX B
================================================================================
AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION
dated as of [___________], 1996
among
AXION INC.,
AXION HEALTHCARE INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION,
OPUS HEALTH SYSTEMS INC.,
OPUS SUB, INC.
and
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
SECTION Page
----
ARTICLE I
Definitions
1.1 Definitions....................................................... 3
1.2 Interpretation.................................................... 11
ARTICLE II
Preliminary Transactions
2.1 Formation of OPUS Sub............................................. 11
2.2 Preference Amount................................................. 11
2.3 Employee Loans; Cancelation or Termination of
Axion Options.................................................. 12
ARTICLE III
Contributions of Assets and
Assumptions of Liabilities
3.1 Contribution of OPUS Sub Assets; Assumption of
OPUS Sub Liabilities; Distribution of
OPUS Sub....................................................... 12
3.2 Contribution of Acquired Assets................................... 12
3.3 Assumption of Assumed Liabilities................................. 13
3.4 Transfer and Assumption Documentation............................. 14
3.5 Nonassignable Contracts........................................... 14
3.6 Cooperation....................................................... 16
ARTICLE IV
The Distribution
4.1 Recapitalization of AHC........................................... 16
<PAGE>
<PAGE>
2
SECTION Page
----
4.2 Mechanics of Distribution......................................... 16
4.3 Timing of Distribution............................................ 17
ARTICLE V
Other Agreements
5.1 Insurance......................................................... 17
5.2 Settlement of Intercompany Balances............................... 18
5.3 Access to Information............................................. 19
5.4 Valuations........................................................ 19
ARTICLE VI
Employee Matters
6.1 Transferred Employees............................................. 20
6.2 Continuing Axion Employees........................................ 21
6.3 Savings Plan...................................................... 21
6.4 Medical and Dental Benefits....................................... 21
6.5 Other Welfare Benefits............................................ 22
6.6 Disability Coverage............................................... 22
6.7 Indemnification................................................... 23
ARTICLE VII
Conditions 24
ARTICLE VIII
Tax Matters 25
ARTICLE IX
Termination, Amendment and Waiver
9.1 Termination....................................................... 25
9.2 Amendments and Waivers............................................ 25
<PAGE>
<PAGE>
3
SECTION Page
----
ARTICLE X
General Provisions
10.1 Counterparts...................................................... 26
10.2 Governing Law..................................................... 26
10.3 Notices........................................................... 26
10.4 Captions.......................................................... 27
10.5 Successors and Assigns............................................ 27
10.6 Assignment........................................................ 27
10.7 Entire Agreement; No Third Party
Beneficiaries.................................................. 28
10.8 Enforcement; Consent to Jurisdiction.............................. 28
10.9 Schedules......................................................... 28
Schedules
- ---------
SCHEDULE 1 Acquired Assets
SCHEDULE 2 Assumed Liabilities
SCHEDULE 3 OPUS Matrix(TM)Software
SCHEDULE 4 OPUS Station Assets
SCHEDULE 5 OPUS Station Data
SCHEDULE 6 OPUS Station Liabilities
SCHEDULE 7 OPUS Sub Assets
SCHEDULE 8 OPUS Sub Liabilities
SCHEDULE 9 Retained Assets
SCHEDULE 10 Retained Liabilities
Exhibits
- --------
EXHIBIT A Transferred Employees
EXHIBIT B Continuing Axion Employees
<PAGE>
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AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION, dated as
of [______________], 1996 (the "Agreement"), among AXION INC., a
Delaware corporation ("Axion"), AXION HEALTHCARE INC., a Delaware
corporation and a wholly owned subsidiary of Axion ("AHC"), ONCOLOGY
THERAPEUTICS NETWORK CORPORATION, a Delaware corporation and a wholly
owned subsidiary of Axion ("OTNC"), OPUS HEALTH SYSTEMS INC., a
Delaware corporation and a wholly owned subsidiary of Axion ("OPUS"),
OPUS SUB, INC., a Delaware corporation and a wholly owned subsidiary
of OPUS ("OPUS Sub"); and ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE,
L.P., a Delaware limited partnership ("OTN" or the "Partnership").
WHEREAS, Bristol-Myers Squibb Company, a Delaware corporation ("BMS"), OTN
Acquisition Sub, Inc., a Delaware corporation and a wholly owned subsidiary of
BMS ("BMS Sub"), and Axion have entered into an Agreement and Plan of Merger,
dated as of August 2, 1996 (the "Merger Agreement"), providing for the merger of
BMS Sub with and into Axion, with Axion as the Surviving Corporation (the
"Merger"), following the Distribution (as defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to such terms in the Merger Agreement;
WHEREAS, in connection with the Merger, all shares of Axion Preferred Stock
outstanding immediately prior to the Time of Distribution (as defined in Section
1.1) will be converted into Axion Common Stock in accordance with the terms of
such Axion Preferred Stock, and all Axion Options outstanding immediately prior
to the Time of Distribution will be exercised or cancelled;
WHEREAS, the purpose of the Distribution (as defined below) is to make
possible the Merger by divesting Axion of the businesses and operations other
than the Retained Business which BMS is unwilling to acquire;
WHEREAS, in furtherance of such purpose, (a) immediately prior to the Time
of Contribution, OTN will distribute to OTNC which will in turn distribute to
Axion the Preference Amount (as defined in Section 2.2), (b) immediately prior
to the Time of Distribution, (i) OPUS
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will contribute the OPUS Sub Assets (as defined in Section 1.1) to OPUS Sub and
OPUS Sub will assume the OPUS Sub Liabilities (as defined in Section 1.1), (ii)
OPUS will distribute the outstanding capital stock of OPUS Sub to Axion and
(iii) Axion will contribute all the Assets (as defined in Section 1.1) of Axion
and its Subsidiaries (including the outstanding capital stock of OPUS Sub) other
than the OPUS Sub Assets (which will remain Assets of OPUS Sub) and the Retained
Assets (as defined in Section 1.1) to AHC and AHC will assume all the
Liabilities (as defined in Section 1.1) of Axion and its Subsidiaries other than
the OPUS Sub Liabilities (which will remain Liabilities of OPUS Sub) and the
Retained Liabilities (as defined in Section 1.1) (the transactions in clauses
(i), (ii) and (iii), collectively, the "Contributions") and (c) immediately
following the Contributions and immediately prior to the Effective Time, subject
to the satisfaction or waiver of the conditions set forth in Article VII of this
Agreement, (i) each issued and outstanding share of AHC Common Stock, par value
$.001 per share ("AHC Common Stock"), will be converted into a number of shares
of AHC Series A Preferred Stock, par value $.001 per share ("AHC Preferred
Stock") as shall be equal to the quotient of (A) the number of shares of Axion
Common Stock outstanding immediately prior to the Time of Distribution
(including any shares of Axion Common Stock issued in connection with the
conversion of Axion Preferred Stock to Axion Common Stock and the exercise of
Axion Options, in each case in connection with the consummation of the Merger)
divided by (B) the number of shares of AHC Common Stock outstanding immediately
prior to the Time of Distribution, and (ii) the Board of Directors of Axion will
cause Axion to distribute to the holders of Axion Common Stock on a pro rata
basis all the then outstanding shares of AHC Preferred Stock (the
"Distribution");
WHEREAS, for Federal income tax purposes, it is intended that the
Distribution shall qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, this Agreement sets forth or provides for certain agreements among
Axion and AHC in consideration of the separation of their ownership.
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NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Distribution Agreement, the parties
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Distribution Agreement, the following
terms shall have the following respective meanings:
"Acquired Assets" shall mean all the Assets of Axion and its Subsidiaries,
other than Retained Assets, and shall include the following:
(i) the "Access Biotechnology", "Access Biotechnology (logo)", "Logo
(Distribution Services)", "Logo (Pharmaceutical Goods)", "Axion", "Axion
HealthCare", "Axion (TM)", "A Axion (& Design)", "OnCare Systems", "OnCare
Health", "OnCare Practice Utilization System", "OPUS", "OPUS & Design" and
"OPUS Health Systems" trademarks, trade names, service marks, service names
and all derivatives thereof;
(ii) a copy of the OPUS Station Data collected from installed OPUS
Stations through the Time of Contribution, including the installed OPUS
Stations listed on Schedule 4, to the extent that provision of such OPUS
Station Data to AHC is permitted under the terms of the applicable
agreements related to such OPUS Stations, provided that in no event shall
such OPUS Station Data be provided by AHC or any of its Subsidiaries to any
third party (other than to OnCare and its Subsidiaries who shall also be
prohibited from providing such OPUS Station Data to any third parties);
(iii) the OPUS Sub Assets;
(iv) all the issued and outstanding shares of the capital stock of
OPUS Sub;
(v) any AHC Tax Refunds (as such term is defined in the Tax Matters
Agreement);
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(vi) all cash and cash equivalents and all interest and dividends
receivable on cash invested in various short-term cash equivalent
securities held by Axion and its Subsidiaries (including the Preference
Amount distributed by the Partnership to OTNC and then by OTNC to Axion in
accordance with the provisions of Section 2.2), other than the Retained
Cash;
(vii) the Employee Loans;
(viii) the 2,700,000 shares of Series A Preferred Stock of OnCare
owned by Axion;
(ix) Insurance Proceeds to the extent provided by Section 5.1(b); and
(x) the Assets listed on Schedule 1.
"Acquired Businesses" shall mean all the businesses of Axion and its
Subsidiaries, other than the OPUS Station Business, the business of the
Partnership, the Retained Assets and the Retained Liabilities.
"Assets" shall mean any and all assets, properties and rights, whether
tangible or intangible, whether real, personal or mixed, whether fixed,
contingent or otherwise, and wherever located, including the following:
(i) real property interests (including leases), and improvements;
(ii) equipment, vehicles, furniture and fixtures, leasehold
improvements, office equipment and other tangible personal property,
together with any rights or claims arising out of the breach of any express
or implied warranty by the manufacturers or sellers of any of such assets
or any component part thereof;
(iii) inventories, including supplies;
(iv) bank accounts, notes, loans and accounts receivable (whether
current or not current), interests as beneficiary under letters of credit
and advances;
(v) financial, accounting and operating data and records, including
books, records, notes, sales and sales promotional data, advertising
materials, credit information, cost and pricing information, customer and
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supplier lists, reference catalogs, payroll and personnel records, minute
books, stock ledgers, stock transfer records and other similar property,
rights and information;
(vi) Intellectual Property;
(vii) agreements, leases, contracts, sale orders, purchase orders and
other commitments and all rights therein;
(viii) prepaid expenses and deposits;
(ix) claims, causes of action, choses in action, rights under
insurance policies, rights under express or implied warranties, rights of
recovery, rights of set-off, rights of subrogation and all other rights of
any kind;
(x) licenses, permits, authorization and approvals; and
(xi) goodwill and going concern value.
"Assumed Liabilities" shall mean all Liabilities of Axion and its
Subsidiaries, other than Retained Liabilities, and shall include the following:
(i) the Liabilities set forth in Section 6.7 of this Agreement;
(ii) those Taxes for which the Axion Indemnifying Parties (as defined
in the Tax Matters Agreement) have agreed to indemnify the BMS Indemnified
Parties (as defined in the Tax Matters Agreement) pursuant to Section
1(a)(i) of the Tax Matters Agreement;
(iii) the OPUS Sub Liabilities; and
(iv) those Liabilities set forth in Schedule 2.
"Best Closing Efforts" shall mean, in addition to Axion not otherwise
knowingly taking any action to frustrate or delay the Merger, the following:
(i) Axion shall have diligently responded to all SEC comments to the
Form S-4 related to Axion or its Subsidiaries (A) within five business days
after
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receipt by Axion or its counsel of any initial SEC comments to the Form S-4
and (B) within a reasonably prompt period under the circumstances after
receipt by Axion or its counsel of any subsequent SEC comments to the Form
S-4;
(ii)(A) in the event that the no-action relief requested by Axion from
the SEC with respect to the distribution of AHC Preferred Stock without
registration under the Securities Act is obtained from the SEC, the
Information Statement shall have been distributed to Axion stockholders at
the same time as the Proxy Statement is distributed to such Axion
stockholders or (B) in the event such no-action relief is not obtained from
the SEC either (I)(x) cause the Form S-1 to be filed within ten business
days after Axion has been finally advised orally or in writing that
no-action relief will not be granted and (y) diligently respond to all SEC
comments to the Form S-1 (1) within five business days after receipt by
Axion or its counsel of any initial SEC comments to the Form S-1 and (2)
within a reasonably prompt period under the circumstances after receipt by
Axion or its counsel of any subsequent SEC comments to the Form S-1, or
(II)(x) provide, and cause its representatives to provide, the information
with respect to Axion and its Subsidiaries required to be included in the
Application to the applicant or applicants within five business days after
Axion has been finally advised orally or in writing that no-action relief
will not be granted, (y) diligently respond as promptly as practicable to
all requests and comments regarding the Application within a reasonably
prompt period under the circumstances after receipt by Axion or its counsel
of any such requests or comments and (z) use its reasonable best efforts to
cause a fairness hearing to be held and the Commissioner
to issue a permit encompassing the distribution of the AHC Preferred Stock
and, if necessary, the BMS Common Stock to be issued in the Distribution;
and
(iii) Axion shall have within two business days following notice to
Axion of clearance by the SEC of the Form S-4 called a meeting of its
stockholders for the purpose of approving the Merger and the transactions
contemplated by the Merger Agreement and the other Documents, with such
meeting to be held
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within twenty business days after the date such meeting is called.
"Employee Loans" shall have the meaning assigned to such term in Section
2.3.
"Insurance Proceeds" shall have the meaning assigned to such terms in
Section 5.1(b).
"Liabilities" shall mean any and all debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or
however arising and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto.
"OPUS Matrix Software" shall mean the Intellectual Property described in
Schedule 3.
"OPUS Station Assets" shall mean all the Assets of Axion and its
Subsidiaries that are primarily used by or are held for use in or are necessary
for the conduct of the OPUS Station Business and shall include the following:
(i) the Pyxis Contract, as the same shall be amended and in effect as
of the Time of Contribution;
(ii) all rental contracts for all installed OPUS Station sites and all
commitments for future installation of OPUS Station sites, as the same
shall be amended and in effect as of the Time of Contribution, including
the contracts and commitments listed on Schedule 4;
(iii) all Intellectual Property related to the OPUS Station Business
(including plans, drawings, product software and other software used or
useful to access data from and to operate OPUS Stations), other than the
OPUS Matrix Software;
(iv) all OPUS Station Data collected from installed OPUS Stations
prior to, at and after the Time of Contribution, including the installed
OPUS Stations at the sites subject to the contracts and commitments listed
on Schedule 4; and
(v) those assets listed on Schedule 4;
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provided, however, that no cash or cash equivalents of Axion or any of its
Subsidiaries and no guarantees, letters of credit or foreign exchange contracts
of Axion or any of its Subsidiaries (other than the Partnership) shall
constitute OPUS Station Assets.
"OPUS Station Business" shall mean Axion's automated drug dispensing and
inventory tracking systems business.
"OPUS Station Data" shall mean information derived from OPUS Station
installations as described in Schedule 5.
"OPUS Station Liabilities" shall mean any Liabilities of Axion, its
Subsidiaries and OTN directly and solely related to the OPUS Station Business
and shall include the Liabilities listed on Schedule 6.
"OPUS Sub Assets" shall mean all the Assets of OPUS other than any such
Assets that are OPUS Station Assets and shall include:
(i) the OPUS Matrix Software;
(ii) all Contracts relating to the development, use and installation
of OPUS Matrix Software and all commitments relating to the future
development, use and installation of OPUS Matrix Software, including the
contracts and commitments listed on Schedule 7; and
(iii) the Assets listed on Schedule 7.
"OPUS Sub Liabilities" shall mean all the Liabilities of OPUS other than
any such Liabilities that are OPUS Station Liabilities or are otherwise Retained
Liabilities and shall include the Liabilities listed on Schedule 8.
"Partnership Interest" shall mean the general partnership interest of OTNC
in the Partnership.
"Preference Amount" shall have the meaning assigned to such term in Section
2.2.
"Retained Assets" shall mean
(i) the OPUS Station Assets;
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(ii) all the Assets of the Partnership and any other Assets of Axion
and its Subsidiaries that are primarily used by or are held for use in or
are necessary for the conduct of the business of OTNC or the Partnership;
(iii) all the outstanding capital stock of OTNC and OPUS and the
Partnership Interest;
(iv) subject to the provisions of Section 5.1(b), all current and
former insurance policies of Axion and its Subsidiaries in effect at or
immediately prior to the Time of Contribution (other than any insurance
policy that is a Benefit Plan) and the right to Insurance Proceeds
thereunder;
(v) the Retained Cash;
(vi) any BMS Tax Refunds (as such term is defined in the Tax Matters
Agreement);
(vii) the "Oncology Therapeutics Network (TM)" and "Oncology
Therapeutics Network (SM)" trademarks, trade names, service marks, service
names and all derivatives thereof; and
(viii) the Assets listed on Schedule 9.
"Retained Business" shall mean the OPUS Station Business, the business of
the Partnership, the Retained Assets and the Retained Liabilities.
"Retained Cash" means (a) an amount in cash equal to the excess, if any, of
the Axion Expenses listed in the Transaction Expense Schedule over $2,000,000,
(b) any cash and cash equivalents held by the Partnership (after giving effect
to the payment of the Preference Amount in accordance with the provisions of
Section 2.2), (c) an amount in cash equal to the sum of (i) the amount of any
Pre-JV Sales Taxes paid by the Partnership or on behalf of Axion at or prior to
the Time of Contribution and (ii) the amount, if any, by which the amount of
JV Sales Taxes paid by the Partnership at or prior to the Time of Contribution
exceeds $667,402 and (d) an amount in cash equal to any amounts withheld from
Continuing Axion Employees as of the Closing Date related to employee benefit
arrangements or in respect of payroll taxes (to the extent such payroll taxes
shall not have been paid to the
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relevant taxing authorities at the Time of Contribution) and employee
contributions to any Benefit Plan.
"Retained Liabilities" shall mean:
(i) OPUS Station Liabilities;
(ii) any Liabilities of Axion and its Subsidiaries directly and solely
related to the business of OTN including those liabilities set forth on
Schedule 10;
(iii) those Taxes (as defined in the Tax Matters Agreement) and other
items for which the BMS Indemnifying Parties (as defined in the Tax Matters
Agreement) have agreed to indemnify the Axion Indemnified Parties (as
defined in the Tax Matters Agreement) pursuant to Section (2)(a)(i) of the
Tax Matters Agreement;
(iv) such other Liabilities of Axion and its Subsidiaries to the
extent they are directly and primarily related to OTN and/or the OPUS
Station Business including those Liabilities set forth on Schedule 10;
(v) the Axion Expenses, but only to the extent that such expenses do
not exceed $2 million;
(vi) any Liabilities of the Retained Companies to the extent such
Liabilities solely relate to or arise from events, occurrences, actions,
omissions, facts or circumstances that occur after the Effective Time;
(vii) all Liabilities of Axion and its Subsidiaries related to the
amounts described in clause (d) of the definition of Retained Cash; and
(viii) the Liabilities listed on Schedule 10;
provided, however, notwithstanding the foregoing, that Retained Liabilities
shall not include any Liabilities described in clauses (i) through (iv) of the
definition of Assumed Liabilities.
"Time Of Contribution" shall mean the time immediately prior to the Time of
Distribution as of which the Contributions are effective.
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"Time Of Distribution" shall mean the time as of which the Distribution is
effective.
"Transfer Agent" shall mean Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian, LLP, the transfer agent for Axion.
1.2 Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "included", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings determined by GAAP.
ARTICLE II
PRELIMINARY TRANSACTIONS
2.1 Formation of OPUS Sub. Prior to the execution of this Agreement, Axion
shall have caused OPUS Sub to be duly incorporated, validly existing and in good
standing under the laws of the State of Delaware. Prior to the Effective Time,
Axion and AHC, as applicable, shall not permit OPUS Sub to engage in any other
business activities or to conduct its operations other than as contemplated by
this Agreement.
2.2 Preference Amount. Immediately prior to the Time of Contribution, Axion
shall cause OTNC to cause OTN to distribute to OTNC an amount equal to
$13,615,147 (the "Preference Amount"), in full satisfaction of all amounts that
may be due as of, or in respect of any period ending on or prior to, the Closing
Date to OTNC in respect of its Capital Account Prime Rate Amount and the General
Partner Cumulative Preference Amount (as each such term is defined in the
Partnership Agreement). Notwithstanding the preceding sentence, if the Closing
Date occurs after September 30, 1996 and Axion shall not have used Best Closing
Efforts to cause the Closing to occur on or prior to September 30, 1996, the
payment referred to therein shall be made only to the extent of cash and cash
equivalents held by OTN as of September 30, 1996 (it being understood that for
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purposes of this Section 2.2 the amount of cash and cash equivalents held by OTN
as of September 30, 1996 shall be reduced by the amount, if any, by which
outstanding indebtedness for borrowed money, or any guaranties in respect of any
indebtedness for borrowed money of any third party, in respect of which OTN is
obligated on September 30, 1996 shall exceed $35,617,000).
2.3 Employee Loans; Cancelation or Termination of Axion Options. Prior to
the Time of Contribution Axion intends to advance to certain of its holders of
Axion Options loans for the purpose of allowing such holders of Axion Options to
exercise the Axion Options held by such holders of Axion Options (the "Employee
Loans"). Immediately prior to the Effective Time, all Axion Options outstanding
immediately prior to the Effective Time shall have been exercised or canceled.
ARTICLE III
CONTRIBUTIONS OF ASSETS AND ASSUMPTIONS OF LIABILITIES
3.1 Contribution of OPUS Sub Assets; Assumption of OPUS Sub Liabilities;
Distribution of OPUS Sub. (a)(i) Effective as of the Time of Contribution, OPUS
hereby grants, assigns, transfers, conveys, contributes and delivers to OPUS
Sub, and OPUS Sub hereby acquires all right, title and interest of OPUS in, to
and under any and all OPUS Sub Assets as the same shall exist at the Time of
Contribution.
(ii) Effective as of the Time of Contribution, OPUS Sub hereby assumes and
undertakes to pay, perform and discharge when due in accordance with their
terms, the OPUS Sub Liabilities.
(b) Effective as of the Time of Contribution, OPUS hereby distributes,
grants, assigns, transfers, conveys, and delivers to Axion, and Axion hereby
acquires, all the outstanding capital stock of OPUS Sub.
3.2 Contribution of Acquired Assets. (a) Effective as of the Time of
Contribution, Axion hereby grants, assigns, transfers, conveys, contributes and
delivers to AHC, and AHC hereby acquires all Axion and its Subsidiaries' right,
title and interest in, to and under any and all Acquired Assets (other than the
OPUS Sub Assets,
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which shall remain Assets of OPUS Sub) as the same shall exist at the Time of
Contribution. Notwithstanding anything to the contrary set forth in this
Agreement, $25,000 of the cash included in the Acquired Assets shall represent
payment by Axion to AHC for the granting by AHC to Axion of the right to use the
OPUS Intellectual Property and the Axion Intellectual Property (each as defined
in the License Agreement), on the terms and conditions set forth in the License
Agreement.
(b) If any Acquired Assets are held by Axion or in a Subsidiary of Axion
other than AHC or OPUS Sub after giving effect to the transactions described in
Sections 3.1(a) and 3.2(a), then Axion shall, and shall cause each such
Subsidiary to, contribute such Acquired Assets to either AHC or OPUS Sub as
specified by AHC. If any Retained Assets are held in a current or former
Subsidiary of Axion other than OTNC, the Partnership or OPUS after giving effect
to the transactions described in Sections 3.1(a) and 3.2(a), then AHC shall, and
shall cause each such Subsidiary to, contribute such Retained Assets to Axion,
OTNC, the Partnership or OPUS as specified by Axion.
(c) THE TRANSFER OF THE ACQUIRED ASSETS HEREUNDER IS MADE WITHOUT RECOURSE
TO AXION OR ANY OF THE RETAINED COMPANIES. AHC AND ITS SUBSIDIARIES EACH
UNDERSTANDS AND AGREES THAT NONE OF AXION, ANY RETAINED COMPANY OR ANY OTHER
PERSON IS, IN THIS AGREEMENT AND THE OTHER DOCUMENTS OR OTHERWISE, REPRESENTING
OR WARRANTING IN ANY WAY, EXPRESS OR IMPLIED, AS TO THE ACQUIRED BUSINESSES, THE
ACQUIRED ASSETS OR THE ASSUMED LIABILITIES TRANSFERRED TO OR ASSUMED BY AHC AND
ITS SUBSIDIARIES AS CONTEMPLATED HEREBY OR AS TO ANY CONSENTS OR APPROVALS
REQUIRED IN CONNECTION WITH THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, IT BEING AGREED AND UNDERSTOOD THAT AHC AND ITS SUBSIDIARIES
SHALL TAKE OR KEEP ALL THE ACQUIRED ASSETS "AS IS WHERE IS" AND THAT AHC AND ITS
SUBSIDIARIES SHALL BEAR THE ECONOMIC AND LEGAL RISK THAT CONVEYANCE OF SUCH
ACQUIRED ASSETS SHALL PROVE TO BE INSUFFICIENT OR THAT THE TITLE TO ANY ACQUIRED
ASSETS SHALL BE OTHER THAN GOOD AND MARKETABLE AND FREE FROM ENCUMBRANCES OF ANY
NATURE WHATSOEVER. NO REPRESENTATION OR WARRANTY IS MADE BY AXION TO AHC
CONCERNING (I) THE MERCHANTABILITY, FITNESS, COLLECTIBILITY, QUALITY,
ENFORCEABILITY OR FITNESS OF ANY ACQUIRED ASSETS OR (II) THE SUFFICIENCY OF THE
ACQUIRED ASSETS OR THE ACQUIRED BUSINESSES TO CONDUCT THE BUSINESS OF AHC AND
ITS SUBSIDIARIES FOLLOWING THE CLOSING.
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3.3 Assumption of Assumed Liabilities. (a) Effective as of the Time of
Contribution, AHC hereby assumes and undertakes to pay, perform and discharge
when due in accordance with their terms, the Assumed Liabilities (other than the
OPUS Sub Liabilities, which shall remain Liabilities of OPUS Sub).
(b) If any Assumed Liabilities are obligations of a Subsidiary of Axion
other than AHC or OPUS Sub after giving effect to the transactions described in
Sections 3.1(a)(i) and 3.2(a) as a result of the allocation of assets of Axion
and its Subsidiaries set forth in this Article III, then notwithstanding the
transactions described in Section 3.1(a)(i) or 3.3(a) or the allocation of
assets of Axion set forth in this Article III, AHC shall, or shall cause OPUS
Sub to, assume each such Assumed Liability. If any Retained Liabilities are
obligations of a Subsidiary of Axion other than OTNC, the Partnership or OPUS
after giving effect to the transactions described in Sections 3.1(a)(i) and
3.2(a) as a result of the allocation of assets set forth in this Article III,
then, notwithstanding the transactions described in Section 3.1(a)(ii) or 3.3(a)
or the allocation of assets set forth in this Article III, Axion shall, or shall
cause OTNC, the Partnership or OPUS to, assume each such Retained Liability.
3.4 Transfer and Assumption Documentation. In furtherance of the
distribution, grant, assignment, transfer, conveyance, contribution and delivery
of the Assets, and the assumption of the Liabilities set forth in Article III,
at the Time of Contribution or as promptly as practicable thereafter (i) each of
Axion and AHC shall execute and deliver, and shall cause its respective
Subsidiaries to execute and deliver, such deeds, bills of sale, stock powers,
certificates of title, assignments of leases and contracts and other instruments
of contribution, grant, conveyance, assignment, transfer and delivery necessary
to evidence such distribution, grant, assignment, transfer, conveyance,
contribution and delivery and (ii) each of Axion and AHC shall execute and
deliver, and shall cause its respective Subsidiaries to execute and deliver,
such instruments of assumption to the extent necessary to evidence such
assumption.
3.5 Nonassignable Contracts. (a) Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
Contract or other commitment or asset if an assignment or
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attempted assignment of the same without the consent of the other party or
parties thereto would constitute a breach thereof or in any way impair the
rights of AHC and its Subsidiaries or the Retained Company and its Subsidiaries
thereunder.
(b) If any consent necessary to convey any Acquired Asset is not obtained
or if an attempted assignment would be ineffective or would impair any party's
rights under any such Contract or other Asset so that AHC or OPUS Sub would not
receive all such rights, then (x) Axion shall use its reasonable best efforts
(it being understood that such efforts shall not include any requirement of
Axion or its Subsidiaries or the Retained Company or its Subsidiaries to expend
money or offer or grant any financial accommodation) to provide or cause to be
provided to AHC or OPUS Sub, as applicable, to the extent permitted by law, the
benefits of any such Contract or other Asset, and Axion shall promptly pay or
cause to be paid to AHC or OPUS Sub, as applicable, when received all moneys
received by Axion or its Subsidiaries or the Retained Company or its
Subsidiaries with respect to any such Contract or other Asset and (y) in
consideration thereof AHC shall, and shall cause OPUS Sub to, pay, perform and
discharge on behalf of Axion and the Retained Company or its Subsidiaries all
Axion and its Subsidiaries' (and the Retained Company and its Subsidiaries')
debts, liabilities, obligations and commitments thereunder in a timely manner
and in accordance with the terms thereof. In addition, Axion shall take such
other actions (at the expense of AHC or OPUS Sub, as designated by AHC) as may
reasonably be requested by AHC in order to place AHC and OPUS Sub, insofar as
reasonably possible, in the same position as if such Contract or other Asset had
been transferred as contemplated hereby and so all the benefits and burdens
relating thereto, including possession, use, risk of loss, potential for gain
and dominion, control and command are to inure to AHC or OPUS Sub, as
applicable. If and when such consents and approvals are obtained, the transfer
of the applicable asset shall be effected in accordance with the terms of this
Agreement.
(c) If any consent necessary to convey to the Retained Companies the
Retained Assets is not obtained or if any attempted assignment would be
ineffective or would impair any party's rights under any such Contract or other
Asset so that Axion or its Subsidiaries would not receive all such rights, then
(x) AHC shall, and shall cause its Subsidiaries to, use its best efforts to
provide or cause to
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be provided to Axion or its Subsidiaries, to the extent permitted by law, the
benefits of any such Contract or other Asset, and AHC shall, and shall cause its
Subsidiaries to, promptly pay or cause to be paid to Axion or its Subsidiaries
when received all moneys received by AHC or its Subsidiaries with respect to any
such Contract or other commitment or asset and (y) in consideration thereof
Axion and its Subsidiaries shall pay, perform and discharge on behalf of AHC and
its Subsidiaries all AHC and its Subsidiaries' debts, liabilities, obligations
and commitments thereunder in a timely manner and in accordance with the terms
thereof. In addition, AHC shall take such other actions (at AHC's expense) as
may reasonably be requested by Axion or BMS in order to place Axion and its
Subsidiaries, insofar as reasonably possible, in the same position as if such
Contract or other Asset had been transferred as contemplated hereby and so all
the benefits and burdens relating thereto, including possession, use, risk of
loss, potential for gain and dominion, control and command are to inure to Axion
and its Subsidiaries. If and when such consents and approvals are obtained, the
transfer of the applicable asset shall be effected in accordance with the terms
of this Agreement.
3.6 Cooperation. The parties shall cooperate with each other in all
reasonable respects to ensure the transfer to AHC or to its Subsidiaries of the
Acquired Businesses, including the Acquired Assets and the Assumed Liabilities
and the retention by the Retained Company and its Subsidiaries of the Retained
Business, including the Retained Assets and the Retained Liabilities. Consistent
with the terms and conditions hereof, each party hereto shall execute and
deliver such instruments and take such other actions as the other parties may
reasonably require in order to carry out the provisions hereof and to consummate
the transactions contemplated hereby.
ARTICLE IV
THE DISTRIBUTION
4.1 Recapitalization of AHC. Effective immediately following the
Contributions and immediately prior to the Effective Time, each issued and
outstanding share of AHC Common Stock shall be converted into that number of
shares of AHC Preferred Stock as shall be equal to the quotient of the number of
shares of Axion Common Stock
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17
outstanding immediately prior to the Time of Distribution (including any shares
of Axion Common Stock issued in connection with the conversion of Axion
Preferred Stock to Axion Common Stock and the exercise of Axion Options, in each
case in connection with the consummation of the Merger) divided by the number of
shares of AHC Common Stock outstanding immediately prior to the Time of
Distribution.
4.2 Mechanics of Distribution. Axion shall declare and pay a dividend of
all the outstanding AHC Preferred Stock to the holders of Axion Common Stock
followed by the distribution of certificates representing one share of AHC
Preferred Stock for each share of Axion Common Stock held by each holder of
record of Axion Common Stock, at the Time of Distribution.
4.3 Timing of Distribution. Immediately following the Contributions and
immediately prior to the Effective Time, subject to the satisfaction or waiver
of the conditions set forth in Article VII, the Board of Directors of Axion
shall formally declare the Distribution and Axion shall effect the Distribution
by delivery of certificates for AHC Preferred Stock to the Transfer Agent for
delivery to the holders of Axion Common Stock entitled thereto. The Distribution
shall be deemed to be effective upon notification by Axion to the Transfer Agent
that the Distribution has been declared and that the Transfer Agent is
authorized to proceed with the distribution of AHC Preferred Stock, which
notification Axion agrees to deliver promptly following such declaration.
ARTICLE V
OTHER AGREEMENTS
5.1 Insurance. (a) Except as provided in Article VI, all current policies
of liability, fire, extended coverage, fidelity, fiduciary, workers'
compensation and other forms of insurance in force as of the Time of
Distribution covering Axion and its directors and officers immediately prior to
the Time of Distribution shall be treated as Retained Assets and not as Acquired
Assets under this Agreement. All coverage under such policies with respect to
AHC and its Subsidiaries shall terminate as of the Effective Time.
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18
(b) Axion agrees that following the Effective Time, AHC and OPUS Sub each
shall retain the rights of an insured party under all current and former
policies of Axion and its Subsidiaries in effect at or immediately prior to the
Time of Contribution ("Axion Policy") with respect to any injury, loss,
liability, damage or expense incurred or claimed to have been incurred prior to
the Time of Distribution by any party that is an Assumed Liability to the extent
that such injury, loss, liability, damage or expense may arise out of insured or
insurable occurrences or events under one or more of such Axion Policies. Axion
shall direct the insurance carriers to pay Insurance Proceeds with respect to
such claims, costs and expenses under such policies directly to AHC or OPUS Sub,
as applicable, with respect to those liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of such policies,
whether or not subject to deductibles, co-insurance, uncollectibility or
retrospectively rated premium adjustments, but only to the extent that such
liabilities are within applicable policy limits, including aggregates.
"Insurance Proceeds" means those funds (i) received by the insured from the
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of the insured. Nothing set forth in this Section 5.1(b) shall be deemed
or interpreted to limit or restrict in any manner the rights of any Retained
Company as an insured party under any Axion Policy to make any claim under any
Axion Policy with respect to any Retained Liability and to receive Insurance
Proceeds with respect thereto to the extent that such liabilities are within
applicable limits, including aggregates.
5.2 Settlement of Intercompany Balances. Except for the Specified
Intercompany Amounts (as defined in Section 5.2(b)), each of (i) the Retained
Company and its Subsidiaries, and (ii) AHC and its Subsidiaries shall submit to
the other not later than five business days prior to Closing a true and complete
schedule (with a copy to BMS) of all (i) unpaid intercompany receivables
that would, if not satisfied immediately subsequent to the Contributions,
constitute intercompany receivables between
the Retained Company and its Subsidiaries, on the one hand, and AHC and its
Subsidiaries, on the other hand (the "Unpaid Intercompany Receivables"), and
(ii) unpaid intercompany payables that would, if not satisfied immediately
subsequent to the Contributions, constitute intercompany payables between the
Retained Company and its Subsidiaries, on the one hand, and AHC and its
Subsidiaries, on the other hand (the "Unpaid Intercompany Payables"). Subject
to the
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19
provisions of Section 2.2, all Unpaid Intercompany Receivables and all Unpaid
Intercompany Payables set forth on such schedules outstanding immediately prior
to the Time of Distribution shall be satisfied immediately prior to the Time of
Distribution; provided, however, that in the event any such Unpaid Intercompany
Receivables or such Unpaid Intercompany Payables cannot be determined
immediately prior to the Time of Distribution (a) each of BMS and Axion shall
deliver, within 30 days after Closing, to the other party a notice in sufficient
detail to enable the other party to confirm the nature and amount of such
party's Unpaid Intercompany Receivables and Unpaid Intercompany Payables
together with a reasonably detailed calculation of the amounts thereof and (b)
not more than 10 days subsequent to receipt of such notice, all Unpaid
Intercompany Receivables and Unpaid Intercompany Payables listed in such notice
shall be satisfied as follows: (i) the Unpaid Intercompany Receivables and the
Unpaid Intercompany Payables of the Retained Company and its Subsidiaries shall
be netted (the "Retained Company Intercompany Balance"), (ii) the Unpaid
Intercompany Receivables and the Unpaid Intercompany Payables of AHC and its
Subsidiaries shall be netted the ("AHC Intercompany Balance") and (iii)
whichever amount set forth in clause (i) or (ii) represents a net payable shall
be paid by AHC or the Retained Company, as applicable.
(b) The Specified Intercompany Amounts shall be settled in the manner set
forth in Schedule 4.01(n)(iii) to the Merger Agreement. For purposes of this
Agreement, Specified Intercompany Amounts shall mean the intercompany
receivables and payables identified as such in Schedule
4.01(n)(iii) to the Merger Agreement.
5.3 Access to Information. From and after the Time of Contribution, each of
Axion and AHC shall afford to the other and to the other's representatives
reasonable access and duplicating rights (at the requesting party's expense)
during normal business hours and upon reasonable advanced notice to all
information within the possession or control of any member of Axion and its
Subsidiaries or AHC and its Subsidiaries, as the case may be, relating to the
business, Assets or Liabilities as they existed prior to the Time of
Contribution or relating to or arising in connection with the relationship
between the constituent elements of Axion and its Subsidiaries, on the one hand,
and AHC and its Subsidiaries, on the other hand, on or prior to the Time of
Contribution, insofar as such access is reasonably required for a reasonable
purpose, subject to the provisions in the
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20
Documents regarding the confidentiality of information. Without limiting the
foregoing, information may be requested under this Section 5.3 for audit,
accounting, claims, litigation and Tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations.
5.4 Valuations. At the Effective Time, Axion shall deposit, or cause to be
deposited, into escrow with Cravath, Swaine & Moore (the "Valuation Escrow
Agent"), and the Valuation Escrow Agent shall acknowledge receipt of, copies of
the valuations prepared by Ernst & Young and all supporting documents (i)
prepared in connection with the distribution of the capital stock of OnCare on
December 31, 1995 to the stockholders of Axion and (ii) regarding the Acquired
Businesses and the OPUS Station Business (collectively, the "Valuations"). The
Escrow Valuation Agent shall hold the Valuations in its possession until
requested by either Axion or AHC in writing to deliver copies of such Valuations
in accordance with the provisions of this Section 5.4. Either Axion or AHC may
request the release of the applicable Valuations if any information contained in
such Valuations and not otherwise available to the requesting party is relevant
to the resolution of any issue that has been raised in any audit or examination
by any Taxing authority, or in any claim, action, suit, inquiry, investigation
or proceeding relating to any such audit or examination or to any other claim,
action, suit, inquiry, investigation or proceeding to which such Valuations may
be relevant.
ARTICLE VI
EMPLOYEE MATTERS
6.1 Transferred Employees. Exhibit A sets forth the name, title and current
employer of each employee of AHC and each employee of Axion, OPUS, OTN and OTNC
whose employment will be transferred to AHC effective upon the Time of
Distribution, such transfer being effected upon the terms and conditions set
forth below in this Section 6.1 (all such employees hereinafter referred to as
"Transferred Employees"). It is intended that all employees of Axion, OPUS, OTN
and OTNC who are not listed on Exhibit B shall be deemed Transferred Employees
whether or not listed on Exhibit A. Prior to the Time of Distribution, AHC shall
offer employment to each employee of Axion, OPUS, OTN and OTNC set forth on
Exhibit A on such terms and conditions
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21
(including salary and benefit level) that are substantially equivalent to the
terms and conditions of the employee's employment with Axion, OPUS, OTN or OTNC,
as the case may be, immediately prior to the Time of Distribution. Any
Transferred Employee not actively-at-work as of the date immediately following
the Time of Distribution shall nonetheless be deemed to be an employee of AHC as
of such date for all purposes and shall be covered under the benefit plans and
arrangements of AHC to the fullest extent permitted by such plans and
arrangements. To the extent any Transferred Employee is not able to be covered
under any benefit plans or arrangements of AHC to the same extent that such
Transferred Employee would have been covered had he or she not been included as
a Transferred Employee, AHC shall bear full responsibility to provide the level
of benefits that such Transferred Employee would have otherwise received. AHC
shall recognize each Transferred Employee's prior service with Axion, AHC, OPUS,
OTN and OTNC and all members of Axion's controlled group within the meaning of
Section 414(b), (c), (m), and (o) of the Code for all purposes under each
employee benefit plan, policy or arrangement of AHC. AHC shall be solely liable
for all liabilities, costs and expenses arising from any Transferred Employee's
failure or inability, for any reason, to accept AHC's offer of employment and
commence or continue such employment with AHC following the Time of
Distribution, including any and all severance or termination benefits, benefit
continuation obligations, or employment-related claims.
6.2 Continuing Axion Employees. Exhibit B sets forth the name, title,
annual base salary and current employer of each employee of Axion, AHC, OPUS,
OTN and OTNC who is intended to be a continuing employee of Axion on and after
the Time of Distribution (each a "Continuing Axion Employee").
6.3 Savings Plan. Immediately prior to the Time of Distribution, the Axion,
Inc. 401K Profit Sharing Plan (the "Axion 401K Plan") shall be divided into two
plans, each plan substantially identical to the Axion 401K Plan. One such plan
shall be maintained by Axion and shall cover only those participants who are
Continuing Axion Employees (the "New Axion 401K Plan") and one such plan shall
cover all other participants in the Axion 401K Plan, including all participants
who are Transferred Employees, retirees and vested terminated participants in
the Axion 401K Plan on the Time of Distribution (the "AHC 401K Plan"). As of the
Time
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22
of Distribution, the AHC 401K Plan shall be transferred to and assumed by AHC.
As soon as practicable following the Time of Distribution, Axion shall cause an
amount in cash (or property acceptable to AHC) to be transferred from the trust
under the Axion 401K Plan to the trust under the AHC 401K Plan equal to the sum
of the account balances of (i) all Transferred Employees, (ii) all retirees and
(iii) all vested terminated participants in the Axion 401K Plan with account
balances under the Axion 401K Plan. Assets relating to the accounts of
Continuing Axion Employees shall be retained by the Axion 401K Plan trust which
shall be renamed the New Axion 401K Plan Trust. Axion and AHC shall cooperate in
good faith to expedite the trust-to-trust transfer and to assure the ongoing
operation and administration of the New Axion 401K Plan and the AHC 401K Plan.
6.4 Medical and Dental Benefits. Effective as of the Time of Distribution,
Axion shall (a) cause the Transferred Employees to cease coverage under and
participation in the Aetna Medical and Dental Plan and the underlying insurance
policy or policies, Axion Pharmaceuticals, Inc. (as amended to be the Oncology
Therapeutics Network Corporation) Flexible Employee Benefit Plan and the Axion
Health Care Inc. Flexible Employee Benefit Plan (the "Axion Health Plan") and
(b) cause the Axion Health Plan to cover only the Continuing Axion Employees.
Effective as of the Time of Distribution, AHC shall establish a medical and
dental plan and a corresponding Code Section 125 plan (the "AHC Health Plan")
substantially equivalent to the Axion Health Plan to cover the Transferred
Employees (and their eligible dependents) on the same basis and subject to the
same conditions that would have applied to such Transferred Employees (and their
dependents) absent the Distribution. The AHC Health Plan shall waive any waiting
period requirements and any pre-existing condition and actively-at-work
exclusions and shall provide that any expenses incurred on or before the Time of
Distribution shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions. Subject to the
indemnification provisions of Section 6.7, Axion shall be responsible for
providing COBRA coverage to any former employee, retiree or COBRA beneficiary
entitled to such coverage under any Axion welfare benefit plan as of the Time of
Distribution.
6.5 Other Welfare Benefits. Effective as of the Time of Distribution, the
Standard Insurance Life and
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23
Accidental Death & Dismemberment Plan shall be transferred to and assumed by AHC
and each Transferred Employee (and his or her dependents) shall continue to
participate in such plans on the same terms that would have applied absent the
Distribution. As of the Time of Distribution, and subject to completion of the
Merger, each Continuing Axion Employee shall receive similar welfare benefits
under the plans of BMS which apply to similarly situated employees of BMS. No
Transferred Employee shall be subject to any waiting period with respect to such
coverage under such welfare plans which would not have applied absent his or her
transfer of employment to AHC.
6.6 Disability Coverage. As of the Time of Distribution, the Standard
Insurance Long Term Disability Plan and any and all liabilities associated with
short term disability coverage or wage continuation thereunder shall be
transferred to and assumed by AHC. No Transferred Employee shall be subject to
any waiting period or pre-existing condition exclusion with respect to such
disability coverage which would not have applied absent his or her transfer of
employment to AHC. In accordance with the foregoing, AHC shall be responsible
for providing short-term and long-term disability benefits to each Transferred
Employee who is or becomes disabled before, on or after the Time of Distribution
and each former employee of Axion who becomes disabled before the Time of
Distribution regardless of whether such former employee would have been a
Transferred Employee if he or she had not become disabled. As of the date
immediately following the Time of Distribution, and subject to completion of the
Merger, each Continuing Axion Employee shall be eligible to participate in the
short-term and long-term disability coverage provided under the plans and
policies of BMS subject to the same coverage levels and other terms and
conditions (including waiting periods and pre-existing condition exclusions) as
a newly hired employee of BMS.
6.7 Indemnification. From and after the Time of Distribution AHC shall
indemnify, defend and hold harmless the BMS Indemnified Parties (as such term is
defined in the Indemnification Agreement) from and against, and pay or reimburse
the BMS Indemnified Parties for, all losses, liabilities, damages, deficiencies,
obligations, fines, expenses, claims, demands, actions, suits, proceedings,
judgments or settlements, whether or not resulting from third party claims,
including interest and penalties recovered by a third party with respect thereto
and out-of-
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24
pocket expenses and reasonable attorneys and accountants' fees and expenses
incurred in the investigation or defense or any of the same or in asserting,
preserving or enforcing any of the rights of BMS Indemnified Parties hereunder,
suffered by any of the BMS Indemnified Parties who or which may seek
indemnification under this Section 6.7, as incurred, relating to or arising from
(a) any employment-related claim of any kind (including any employment benefit
claim or any severance claim under the Oncology Therapeutics Network Corporation
Officer Severance Plan or any other severance or termination pay plan or
arrangement) involving any Transferred Employee, Continuing Axion Employee or
any other employee, retiree, former employee, applicant for employment of Axion,
AHC, OPUS, OTN, OTNC or any of their respective affiliates and any predecessor
of any such entity and any of such individual's beneficiaries or dependents
covered under any plan maintained by Axion or its affiliates arising out of or
relating to any event or state of facts occurring or existing on or before the
Time of Distribution; (b) any employment-related claim of any kind (including
any employee benefit claim or any severance claim under any severance or
termination pay plan or arrangement) involving any Transferred Employee or any
other employee, retiree, former employee or applicant for employment with AHC
and any of such individual's beneficiaries or dependents covered under any plan
maintained by AHC or its affiliates and arising out of or relating to any event
or state of facts occurring or existing on or after the Time of Distribution;
(c) any claim for severance, salary continuation or other termination benefits
payable in respect of any termination or deemed termination of the employment of
any Transferred Employee or Continuing Axion Employee arising from or relating
to the transactions contemplated by this Agreement or the Merger Agreement or
any transfer of such employee's employment in connection therewith, regardless
of whether such claim is deemed to arise before, on or after the Time of
Distribution; (d) any claim or expense incurred with respect to any Transferred
Employee relating to any Benefit Plan or any successor plan or any accrued
liabilities for payroll taxes which arise before, on or after the Time of
Distribution; (e) any claim or expense incurred with respect to any former
employee whose employment terminated prior to the Time of Distribution or any
COBRA beneficiary who is not a Continuing Axion Employee relating to any Benefit
Plan or any successor plan or any accrued liabilities for payroll taxes or
employee contributions to any Benefit Plan which arise prior to the Time of
Distribution; and (f) any claim or expense incurred with respect to any
Transferred
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25
Employee, Continuing Axion Employee or former employee relating to workers
compensation liability where the claim arose with respect to an event occurring
prior to the Time of Distribution.
ARTICLE VII
CONDITIONS
The obligations of Axion to consummate the Distribution shall be subject to
the fulfillment of each of the following conditions:
(a) All the transactions or obligations contemplated by Articles III and IV
to be consummated or performed at or prior to the Time of Distribution shall
have been successfully consummated or so performed.
(b) Each condition to the closing of the Merger set forth in Article VII of
the Merger Agreement (other than the completion of the Contributions and the
Distribution) shall have been satisfied (or waived by the party for whose
benefit such condition exists).
(c) The Board of Directors of Axion shall be reasonably satisfied that,
after giving effect to the Distribution, (i) AHC will not be insolvent and will
not have unreasonably small capital with which to engage in its businesses and
(ii) Axion's surplus would be sufficient to permit, without violation of Section
170 of the Delaware General Corporation Law, the Distribution.
(d) All filings required to be made with, and all consents, approvals and
authorizations required to be obtained from, any Governmental Entity in
connection with the execution, delivery and performance of this Agreement or the
consummation of the Contributions, the Distribution or the other transactions
contemplated by this Agreement shall have been made or obtained.
(e) No temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Distribution shall
be in effect (each party agreeing to use all reasonable best efforts to have any
such order reversed or injunction lifted).
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26
ARTICLE VIII
TAX MATTERS
Notwithstanding anything to the contrary in this Agreement, all Tax
Liabilities, Tax Assets and all other matters related to Taxes shall be governed
by the terms of the Tax Matters Agreement.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Notwithstanding anything to the contrary in this
Agreement, this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Time of Distribution by mutual written
consent of Axion and AHC but only in the event the Merger Agreement is
terminated by any party thereto in accordance with the terms thereof.
9.2 Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto and
consented to by BMS. By an instrument in writing, the parties hereto may waive
compliance by any other party with any term or provision of this Agreement that
such other party was or is obligated to comply with or perform; provided that no
such waiver by Axion shall be effective unless consented to by BMS.
ARTICLE X
GENERAL PROVISIONS
10.1 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in separate counterparts, each such counterpart being
deemed to be an original instrument, and which counterparts shall together
constitute the same agreement and shall become effective when one or more
counterparts have been signed by each of the parties and delivered to the other
parties.
10.2 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the
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27
State of Delaware, without reference to this conflicts of law principles.
10.3 Notices. Any notice, request, instruction or other document to be
given hereunder by any party to any other party shall be deemed to have been
duly given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice)
If to Axion, to:
Axion Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
with copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way
Palo Alto, CA 94304
Attention: Steven M. Spurlock
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: Robert E. Ewers, Jr.
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
Attention: Susan Webster
If to AHC, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
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28
with a copy to:
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way
Palo Alto, CA 94304
Attention: Steven M. Spurlock
10.4 Captions. All Article, Section and paragraph captions herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
10.5 Successors and Assigns. This Agreement and all the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
10.6 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
10.7 Entire Agreement; No Third Party Beneficiaries. This Agreement, the
Merger Agreement, the other Documents and the agreements referred to herein and
therein, and required to be delivered in connection with the transactions
contemplated by the Documents (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and (b) are not
intended to confer upon any person or entity other than BMS, BMS Sub and the
parties hereto any rights or remedies. BMS and BMS Sub shall be third party
beneficiaries of this Agreement.
10.8 Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce
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29
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any Federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal Court sitting
in the State of Delaware or in Delaware state court.
10.9 Schedules. All Schedules attached hereto or referred to herein are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in any Schedule but not otherwise defined therein
shall have the respective meanings assigned to such terms in this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
AXION INC.,
by______________________________________
Name:
Title:
AXION HEALTHCARE INC.,
by______________________________________
Name:
Title:
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30
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by______________________________________
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
by______________________________________
Name:
Title:
OPUS SUB, INC.,
by______________________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by______________________________________
Name:
Title:
<PAGE>
<PAGE>
APPENDIX C
================================================================================
POST-CLOSING COVENANTS AND
INDEMNIFICATION AGREEMENT
dated as of [______], 1996
among
BRISTOL-MYERS SQUIBB COMPANY, on its own behalf
and as representative of Axion, OPUS,
OTNC and the Partnership,
OTN ACQUISITION SUB INC.,
AXION INC.,
OPUS HEALTH SYSTEMS INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
AXION HEALTHCARE INC., on its own behalf
and as representative of the AHC Subsidiaries
and for the former stockholders
of Axion Inc.
OPUS SUB, INC.,
THE OTHER 81% AHC SUBSIDIARIES
and
THE FORMER STOCKHOLDERS OF AXION INC.
================================================================================
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2
TABLE OF CONTENTS
SECTION Page
----
ARTICLE I
The Definitions
1.01. Definitions................................................. 3
1.02. Interpretation ............................................. 5
ARTICLE II
Indemnification by the AHC Indemnifying Parties
2.01. Indemnification Obligations ................................ 5
2.02. Limitations on Indemnification Obligations ................. 8
ARTICLE III
Indemnification by the BMS Indemnifying Parties
3.01. Indemnification Obligations of the BMS
Indemnifying Parties......................................... 9
3.02. Limitation on Indemnification Obligations ................... 10
ARTICLE IV
Indemnification Procedures
4.01. Third Party Claims .......................................... 10
4.02. Other Indemnifiable Losses .................................. 12
4.03. Indemnifiable Losses Net of
Third Party Recoveries .................................... 13
4.04. Indemnifiable Losses Payable on After-Tax Basis ............. 13
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SECTION Page
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ARTICLE V
Covenants
5.01. Confidentiality ............................................. 13
5.02. Merger, Consolidation and Related Matters ................... 15
5.03. Indemnification Unavailable ................................. 16
5.04. Further Assurances........................................... 16
ARTICLE VI
Miscellaneous and General
6.01. Amendment ................................................... 17
6.02. Waiver, Remedies ............................................ 17
6.03. Counterparts ................................................ 17
6.04. Governing Law ............................................... 17
6.05. Notices ..................................................... 17
6.06. Successors and Assigns ...................................... 18
6.07. Effect of Expiration ........................................ 19
6.08. Assignment................................................... 19
6.09. Captions..................................................... 19
6.10. Severability................................................. 19
6.11. Entire Agreement; No Third Party Beneficiaries .............. 20
6.12. Enforcement; Consent to Jurisdiction ........................ 20
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POST-CLOSING COVENANTS AND INDEMNIFICATION
AGREEMENT dated as of [_____], 1996 (the "Agreement"),
among BRISTOL-MYERS SQUIBB COMPANY, a Delaware
corporation (on its own behalf and as representative of
Axion, OPUS, OTNC and the Partnership) ("BMS"); OTN
ACQUISITION SUB INC., a Delaware corporation and a
wholly owned subsidiary of BMS ("BMS Sub"); AXION INC.,
a Delaware corporation ("Axion"); OPUS HEALTH SYSTEMS
INC., a Delaware corporation and a wholly owned
subsidiary of Axion ("OPUS"); ONCOLOGY THERAPEUTICS
NETWORK CORPORATION, a Delaware corporation and a
wholly owned subsidiary of Axion ("OTNC"); ONCOLOGY
THERAPEUTICS NETWORK JOINT VENTURE, L.P., a Delaware
limited partnership ("OTN" or the "Partnership"); AXION
HEALTHCARE INC., a Delaware corporation (on its own
behalf and as representative of the 81% AHC
Subsidiaries and the Former Axion Stockholders)
("AHC"); OPUS SUB, INC., a Delaware corporation and a
wholly owned subsidiary of OPUS ("OPUS Sub"; and,
together with certain other Subsidiaries of AHC which
shall become a party hereto pursuant to the provisions
of Section 5.02(c), the "81% AHC Subsidiaries"); and
all the stockholders of Axion immediately prior to the
Effective Time (as such term is defined in the Merger
Agreement referred to below) (the "Former Axion
Stockholders").
WHEREAS, BMS, BMS Sub and Axion have entered into an Agreement and Plan of
Merger, dated as of August 2, 1996 (the "Merger Agreement"), providing for the
merger of BMS Sub with and into Axion, with Axion as the Surviving Corporation
(the "Merger") following the Distribution (as defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to such terms in the Merger Agreement or
the Distribution Agreement, as the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement and plan
of reorganization and distribution embodied in the form of the agreement
attached as Exhibit A to the Merger Agreement (the "Distribution
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Agreement"), pursuant to which (a) immediately prior to the Time of
Contribution, OTN will distribute to OTNC which will in turn distribute to Axion
the Preference Amount, (b) immediately prior to the Time of Distribution, (i)
OPUS will contribute the OPUS Sub Assets to OPUS Sub and OPUS Sub will assume
the OPUS Sub Liabilities, (ii) OPUS will distribute the outstanding capital
stock of OPUS Sub to Axion and (iii) Axion will contribute all the Assets of
Axion and its Subsidiaries (including the outstanding capital stock of OPUS Sub)
other than the OPUS Sub Assets (which will remain Assets of OPUS Sub) and the
Retained Assets to AHC and AHC will assume all the Liabilities of Axion and its
Subsidiaries other than the OPUS Sub Liabilities (which will remain Liabilities
of OPUS Sub) and the Retained Liabilities (the transactions in clauses (i), (ii)
and (iii), collectively, the "Contributions") and (c) immediately following the
Contributions and immediately prior to the Effective Time, subject to the
satisfaction or waiver of the conditions set forth in Article VII of the
Distribution Agreement, (i) each issued and outstanding share of AHC Common
Stock, par value $.001 per share ("AHC Common Stock"), will be converted into a
number of shares of AHC Series A Preferred Stock, par value $.001 per share
("AHC Preferred Stock") as shall be equal to the quotient of (A) the number of
shares of Axion Common Stock outstanding immediately prior to the Time of
Distribution (including any shares of Axion Common Stock issued in connection
with the conversion of Axion Preferred Stock to Axion Common Stock and the
exercise of Axion Options, in each case in connection with the consummation of
the Merger) divided by (B) the number of shares of AHC Common Stock outstanding
immediately prior to the Time of Distribution, and (ii) the Board of Directors
of Axion will cause Axion to distribute to the holders of Axion Common Stock on
a pro rata basis all the then outstanding shares of AHC Preferred Stock (the
"Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern certain matters
that may arise following the Contributions, the Distribution and the Merger; and
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WHEREAS, the parties to this Agreement hereto, as a condition to their
obligations to consummate the Merger, have also entered into the Tax Matters
Agreement to govern certain tax-related matters in connection with the
Distribution and the Merger.
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
Definitions
SECTION 1.01. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Distribution Agreement, as the case may be. As used in
this Agreement, the following terms shall have the following respective
meanings:
"AHC Indemnified Parties" shall mean AHC and its direct or indirect
Subsidiaries and their respective affiliates and each of their respective
officers, directors, employees, stockholders, agents and representatives.
"AHC Indemnifying Parties" shall have the meaning assigned to such
term in Section 2.01.
"BMS Indemnified Parties" shall mean BMS, its direct or indirect
Subsidiaries, including the Surviving Corporation and its Subsidiaries
(including the Partnership) and their respective affiliates and each of
their respective officers, directors, employees, stockholders, agents and
representatives.
"BMS Indemnifying Parties" shall have the meaning assigned to such
term in Section 3.01.
"81% AHC Subsidiary" shall mean any corporation, company or other
entity (i) more than 81% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) which does not have outstanding shares or
securities (as may be the case in
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a partnership, joint venture or unincorporated association), but more than
81% of whose ownership interest representing the right to make decisions
for such other entity is, in each case, owned or controlled, directly or
indirectly, by AHC.
"Exculpated Parties" shall mean OTNC, its officers, directors,
stockholders, employees, or affiliates, the Chairman of the Management
Committee (as such term is defined in the Partnership Agreement) or any
other officer of the Partnership or the members of the Management Committee
appointed by OTNC pursuant to Section 7.2 of the Partnership Agreement.
"Filings" shall mean the Form S-4, the Proxy Statement, the Required
AHC Documents or any other document filed or required to be filed with the
Securities and Exchange Commission or any state securities commission or
otherwise provided, or required to be delivered, to the stockholders of
Axion or, following the Distribution, the stockholders of AHC, in
connection with the transactions contemplated by the Merger Agreement or
the other Documents, any preliminary or final form thereof or any amendment
or supplement thereto.
"Indemnifiable Losses" shall mean, subject to Section 2.02(d), all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements,
whether or not resulting from third party claims, including interest and
penalties recovered by a third party with respect thereto and out-of-pocket
expenses and reasonable attorneys' and accountants' fees and expenses
incurred in the investigation or defense or any of the same or in
asserting, preserving or enforcing any of the rights of AHC Indemnified
Parties or BMS Indemnified Parties hereunder, suffered by any of the BMS
Indemnified Parties or the AHC Indemnified Parties who or which may seek
indemnification under this Agreement; provided, however, that
notwithstanding anything to the contrary set forth herein, Indemnifiable
Losses shall not include any such losses relating to or arising from any
breach of any representation, warranty or covenant contained in Section
4.01(j) of the Merger Agreement or any other amount relating to Taxes (as
defined in the
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Tax Matters Agreement) or for which indemnity is payable under the Tax
Matters Agreement.
SECTION 1.02. Interpretation. When a reference is made in this Agreement to
a Section, Schedule or Exhibit, such reference shall be to a Section, Schedule
or Exhibit of this Agreement unless otherwise indicated. The table of contents
and headings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement.
Whenever the words "included", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation". All accounting terms not defined in this Agreement shall have the
meanings determined by GAAP.
ARTICLE II
Indemnification by the AHC Indemnifying Parties
SECTION 2.01. Indemnification Obligations. AHC, each of the 81% AHC
Subsidiaries and each Former Axion Stockholder (collectively, the "AHC
Indemnifying Parties") shall, jointly and severally, indemnify, defend and hold
harmless the BMS Indemnified Parties from and against, and pay or reimburse the
BMS Indemnified Parties for, all Indemnifiable Losses, as incurred (payable
quarterly upon written request, with interest from the date which is 30 days
from the date of such request to the date of actual payment, at the prime or
base rate of The Chase Manhattan Bank announced from time to time):
(a) to the extent relating to or arising from (i) any breach of any
representation or warranty by Axion or any of its Subsidiaries in the
Merger Agreement or any other Document (or in any certificate or similar
document delivered pursuant thereto) or (ii) any breach of any covenant of
Axion or any of its Subsidiaries in the Merger Agreement or any other
Documents requiring performance on or prior to the Closing Date or (iii)
any breach of any covenant of AHC and its Subsidiaries in the Merger
Agreement or any other Documents requiring performance after the Closing
Date;
(b) (i) in the case of the Form S-4 and, if required in connection
with the Distribution, the Form S-1 or the Application, relating to or
arising
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from any claim that there existed any untrue statement of a material fact
or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) in the case
of the Proxy Statement, any other Filings and, if required in connection
with the Distribution, the Information Statement, relating to or arising
from any claim that there existed any untrue statement of a material fact
or any omission of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; or (iii) in the case of any
Required AHC Documents or other Filings that are provided or required to be
delivered to the Axion stockholders, relating to or arising from any
failure by Axion to so provide or deliver such Required AHC Documents or
other Filings; but only, in the case of (i) or (ii), with respect to
information furnished or to be furnished by Axion or and its
representatives contained in or omitted from the Filings;
(c) relating to or arising from the Acquired Assets, the Assumed
Liabilities (including the failure by AHC or any of the AHC Companies to
otherwise perform or discharge such Assumed Liabilities), the Acquired
Businesses or the current, former or future operations or employees of AHC
and its Subsidiaries' businesses, whether such Indemnifiable Losses relate
to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the
Effective Time, other than, in each case, any Retained Liabilities;
(d) relating to or arising from the current or former operations or
employees of Axion and its current or former Subsidiaries' businesses
whether such Indemnifiable Losses relate to or arise from events,
occurrences, actions, omissions, facts or circumstances occurring or
existing before or at the Effective Time, whether asserted before, at or
after the Effective Time, other than, in each case, any Retained
Liabilities;
(e) relating to or arising from claims of any stockholders, directors,
officers, employees or agents of Axion and its Subsidiaries to the extent
related to or arising from the execution by Axion or any of its
Subsidiaries of this Agreement or the other Documents
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or the consummation of the transactions contemplated hereby or thereby
(including any claims for indemnification by any officer or director of
Axion or any of its Subsidiaries pursuant to any applicable law, the
charter and by-laws or other governing instruments of Axion or any such
Subsidiary or any indemnification agreement between Axion or any such
Subsidiary and any such person) (except for any Indemnifiable Loss for
which the AHC Indemnifying Parties are indemnified pursuant to Section
3.01(c));
(f) relating to or arising from any Axion Expenses to the extent that
such Axion Expenses were not included on the Transaction Expense Schedule
and the aggregate amount of all Axion Expenses exceeds $2,000,000;
(g) relating to or arising out of (i) the breach of any term, covenant
or condition contained in the Partnership Agreement, the Trademark License
Agreement dated as of July 8, 1993 between BMS and the Partnership (the
"Trademark License Agreement") or any other agreement to which any of the
Exculpated Parties and the Partnership are parties (other than any breach
by the Limited Partner (as such term is defined in the Partnership
Agreement), its officers, directors, stockholders, employees or affiliates
or any member of the Management Committee appointed by the Limited Partner
pursuant to Section 7.2 of the Partnership Agreement) or (ii) the gross
negligence or wilful misconduct by any Exculpated Party of its obligations
under the Partnership Agreement, the Trademark License Agreement or any
other such agreement, in each case relating to or arising out of events,
occurrences, actions, omissions, facts or circumstances occurring or
existing at or prior to the Effective Time, whether asserted at, prior to
or after the Effective Time;
(h) that are Liabilities of the Partnership under Section 11(b) of the
Sales Agency Agreement dated as of July 8, 1993, as amended, between BMS
and the Partnership, relating to or arising out of events, occurrences,
actions, omissions, facts or circumstances occurring or existing at or
prior to the Effective Time, whether asserted at, prior to or after the
Effective Time; or
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(i) incurred in connection with the enforcement by the BMS Indemnified
Parties of their rights to be indemnified and held harmless under this
Agreement.
SECTION 2.02. Limitations on Indemnification Obligations. (a) The
indemnification obligations of the AHC Indemnifying Parties for (i) any
Indemnifiable Loss of the type set forth in Section 2.01(a)(i) or (ii) that is
directly related to OTN shall equal 50% of such Indemnifiable Loss, and (ii) any
other Indemnifiable Loss shall equal 100% of such Indemnifiable Loss;
(b) The AHC Indemnifying Parties shall not have any liability under this
Agreement with respect to any Indemnifiable Loss of the type set forth in
Section 2.01(a)(i) or (ii) that is directly related to OTN or the OPUS Station
Business unless the aggregate of all such Indemnifiable Losses for which the AHC
Indemnifying Parties would but for this sentence be liable exceeds on an
aggregate basis an amount equal to $500,000 and provided that the AHC
Indemnifying Parties' liability with respect to such Indemnifiable Losses shall
in no event exceed $12,000,000.
(c) The indemnification obligations of the AHC Indemnifying Parties under
this Agreement with respect to (i) any Indemnifiable Loss of the type set forth
in Section 2.01(a)(i) or (ii) that directly relates to OTN or the OPUS Station
Business (other than Indemnifiable Losses related to or arising from any breach
of the representations and warranties in Section 4.01(c), 4.01(n), or 4.01(p) of
the Merger Agreement) shall terminate on March 31, 1998, (ii) any Indemnifiable
Losses related to or arising from any breach of the representations and
warranties in Section 4.01(c), 4.01(n) or 4.01(p) of the Merger Agreement shall
terminated on the third anniversary of the Effective Time and (iii) all other
Indemnifiable Losses shall not terminate.
(d) Notwithstanding anything to the contrary set forth herein (except as
provided in Section 2.02(e)), the indemnification obligations of the Former
Axion Stockholders under this Agreement shall be limited to the amounts held in
the BMS Stock Escrow Fund (as such term is defined in the Escrow Agreement).
(e) The limitations on the AHC Indemnifying Parties' liability under this
Agreement as set forth in
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Sections 2.02(a), (b), (c) and (d) above shall not apply to any Indemnifiable
Losses relating to or arising from fraud or any misrepresentation or breach of
which Axion, AHC, the 81% AHC Subsidiaries or their respective officers and
directors had knowledge or any intentional failure to perform or comply with any
covenant (collectively, "fraud"), and the AHC Indemnifying Parties shall be
jointly and severally liable for all Indemnifiable Losses with respect thereto;
provided, however, that a Former Axion Stockholder shall be liable for
Indemnifiable Losses related to or arising from fraud only with respect to any
fraud by such Former Axion Stockholder.
(f) The indemnification obligations of the AHC Indemnified Parties under
this Article II shall be subject to offset as provided in Section 10(b) of the
Tax Matters Agreement.
ARTICLE III
Indemnification by the BMS Indemnifying Parties
SECTION 3.01. Indemnification Obligations of the BMS Indemnifying Parties.
BMS, Axion, OTNC, the Partnership and OPUS (collectively, the "BMS Indemnifying
Parties") shall, jointly and severally, indemnify, defend and hold harmless the
AHC Indemnified Parties from and against, and pay or reimburse the AHC
Indemnified Parties for all Indemnifiable Losses, as incurred (payable quarterly
upon written request, with interest from the date which is 30 days from the date
of such request to the date of actual payment, at the prime or base rate of The
Chase Manhattan Bank announced from time to time):
(a) relating to or arising from the Retained Assets, the Retained
Liabilities (including the failure by Axion or any of its Subsidiaries to
pay, perform or otherwise discharge such Retained Liabilities in accordance
with their terms), whether such Indemnifiable Losses relate to or arise
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the Effective Time;
(b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger
Agreement or any other
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Document (or in any certificate or similar document delivered pursuant
thereto);
(c) (i) in the case of the Form S-4 and, if required in connection
with the Distribution, the Form S-1 or the Application, relating to or
arising from any claim that there existed any untrue statement of a
material fact or any omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii) in
the case of the Proxy Statement, any other Filings and, if required in
connection with the Distribution, the Information Statement, relating to or
arising from any claim that there existed any untrue statement of a
material fact or any omission of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each
case with respect to information furnished or to be furnished by BMS or its
representatives contained in or omitted from the Filings; or
(d) incurred in connection with the enforcement by the AHC Indemnified
Parties of their rights to be indemnified, defended and held harmless under
this Agreement.
SECTION 3.02. Limitation on Indemnification Obligations. The
indemnification obligations of the BMS Indemnifying Parties under this Agreement
with respect to (a) any Indemnifiable Loss of the type set forth in Section
3.01(b) shall terminate on March 31, 1998 and (b) all other Indemnifiable Losses
shall not terminate.
ARTICLE IV
Indemnification Procedures
SECTION 4.01. Third Party Claims. (a) In order for any person (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim made by any
person against the indemnified party (a "Third Party Claim"), such indemnified
party must notify the indemnifying party in writing, and in reasonable detail,
of the Third Party Claim within 20 business days after receipt by such
indemnified party of written notice of the Third Party
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Claim; provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
indemnifying party shall have been actually prejudiced as a result of such
failure (except that the indemnifying party shall not be liable for any expenses
incurred during the period in which the indemnified party failed to give such
notice); and provided, further, however, that with respect to any matter for
which the AHC Indemnifying Parties are the indemnifying party, the AHC
Indemnifying Parties shall be deemed to have received notice hereunder with
respect to all matters concluded or initiated prior to, or otherwise pending at,
the Time of Contribution. Thereafter, the indemnified party shall deliver to the
indemnifying party, promptly after the indemnified party's receipt thereof,
copies of all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an indemnified party pursuant to
the terms of this Agreement, the indemnifying party will be entitled to
participate in the defense thereof and, if it so chooses, to assume the defense
thereof (at the expense of the indemnifying party) with counsel selected by the
indemnifying party. Should the indemnifying party so elect to assume the defense
of a Third Party Claim, the indemnifying party will not be liable to the
indemnified party for any legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the indemnifying party has
not assumed the defense thereof (other than during any period in which the
indemnified party shall have failed to give notice of the Third Party Claim as
provided above). If the indemnifying party chooses to defend or prosecute a
Third Party Claim, all the parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and (upon the
indemnifying party's request) the provision to the indemnifying party of records
and information which are reasonably relevant to such Third Party Claim, and
making employees available on a mutually convenient basis to provide additional
information and
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explanation of any material provided hereunder. If the indemnifying party
chooses to defend or prosecute any Third Party Claim, the indemnified party will
agree to any settlement, compromise or discharge of such Third Party Claim which
the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of liability in connection with such
Third Party Claim; provided, however, that the indemnifying party shall not
consent to entry of any judgment or enter into any settlement (x) that provides
for injunctive or other nonmonetary relief affecting the indemnified party or
(y) that does not include as an unconditional term thereof the giving by each
claimant or plaintiff to such indemnified person of a release from all liability
with respect to such claim. Whether or not the indemnifying party shall have
assumed the defense of a Third Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld).
SECTION 4.02. Other Indemnifiable Losses. In order for an indemnified party
to be entitled to any indemnification provided for under this Agreement in
respect of a claim that does not involve a Third Party Claim being asserted
against or sought to be collected from such indemnified party, the indemnified
party shall deliver notice of such claim with reasonable promptness to the
indemnifying party. The failure by any indemnified party to so notify the
indemnifying party shall not relieve the indemnifying party from any liability
which it may have to such indemnified party under this Agreement, except to the
extent that the indemnifying party shall have been actually prejudiced by such
failure. If the indemnifying party does not notify the indemnified party within
60 calendar days following its receipt of such notice that the indemnifying
party disputes in good faith its liability to the indemnified party under this
Agreement, such claim specified by the indemnified party in such notice shall be
conclusively deemed a liability of the indemnifying party under this Agreement
and, subject to the provisions of Section 2.02(b), the indemnifying party shall
pay the amount of such liability to the indemnified party on demand or, in the
case of any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as
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provided above, the indemnifying party and the indemnified party shall proceed
in good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations, such dispute shall be resolved by litigation in an
appropriate court of competent jurisdiction subject to the provisions of
Sections 6.14 and 6.15.
SECTION 4.03. Indemnifiable Losses Net of Third Party Recoveries. The
amount of any Indemnifiable Losses for which indemnification is provided under
this Agreement shall be net of any amounts actually recovered prior to the date
of actual notice of such Indemnifiable Loss pursuant to Section 4.01 or 4.02 by
the indemnified party under third-party insurance policies with respect to such
Indemnifiable Losses. Any amounts recovered by an indemnified party under
third-party insurance policies with respect to an Indemnifiable Loss subsequent
to the date of actual notice of such Indemnifiable Loss pursuant to Section 4.01
or 4.02 shall be paid promptly to the relevant indemnifying party. An insurer
who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto.
SECTION 4.04. Indemnifiable Losses Payable on After-Tax Basis. All
Indemnified Losses (and any amounts payable pursuant to the second sentence of
Section 4.03) shall be determined, and all indemnification payments shall be
made, on an after-tax basis to the indemnified party, provided that each
indemnified party shall be assumed to pay taxes at the highest applicable
effective federal, state and local rate and each indemnified party shall
initially determine whether to treat a particular item of expense as tax
deduction or a particular receipt as taxable income, and shall submit any such
determination for approval to the indemnifying party reasonably promptly. If the
indemnifying party, within 30 days after receipt of such notification, notifies
the indemnified party that it does not approve of such determination, then AHC
and BMS shall proceed in good faith to negotiate a resolution of such dispute
and, if not resolved through negotiations, such dispute shall be resolved by
litigation in an appropriate court of competent jurisdiction.
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ARTICLE V
Covenants
SECTION 5.01. Confidentiality. The Confidentiality Agreement will
terminate, according to its terms, as of the Effective Time. Immediately from
and after the Effective Time, except as otherwise provided in this Agreement,
(a) the BMS Indemnified Parties will, and will cause their Subsidiaries and
affiliates (and their respective officers, employees, accountants, counsel,
financial advisors and other representatives to whom they disclose such
information) to hold in strict confidence and not use or disclose for five years
from the Effective Time (i) all confidential Evaluation Material (as defined in
the Confidentiality Agreement) in the possession of the BMS Indemnified Parties
or to which the BMS Indemnified Parties are given access pursuant to the
Confidentiality Agreement or Section 6.03 of the Merger Agreement to the extent
that such Evaluation Material relates to the AHC Companies or to OnCare and its
Subsidiaries and (ii) all confidential and proprietary information relating to
the Acquired Assets and the Assumed Liabilities in the possession of the BMS
Indemnified Parties, and (b) the AHC Indemnified Parties will, and will cause
their Subsidiaries and affiliates (and their respective officers, employees,
accountants, counsel, financial advisors and other representatives to whom they
disclose such information) to hold in strict confidence and not use or disclose
for five years from the Effective Time all confidential and proprietary
information relating to the Retained Assets and the Retained Liabilities in the
possession of the AHC Indemnified Parties. Notwithstanding anything herein to
the contrary, the provisions of this Section 5.01 shall not apply to the
disclosure by any party hereto or their respective Subsidiaries or affiliates of
any information, documents or materials (i) which are, or become, publicly
available, other than by reason of a breach of this Section 5.01 by the
disclosing party or by any Subsidiary or any affiliate of the disclosing party,
(ii) received from a third party not bound by any confidentiality requirement
with the other parties hereto, (iii) which are, or become, independently
developed by such party without violating any of its obligations under this
Section 5.01, (iv) required by applicable law to be disclosed by such party, or
(v) necessary to establish such party's rights under this Agreement, the Merger
Agreement or any other Document, provided that, in the case of clauses (iv) and
(v), the person intending to make disclosure of confidential
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15
]information will promptly notify the party to whom it is obliged to keep such
information confidential and, to the extent practicable, provide such party a
reasonable opportunity to prevent such public disclosure.
SECTION 5.02. Merger, Consolidation and Related Matters. (a) AHC and each
of the 81% AHC Subsidiaries agrees that, unless BMS shall otherwise consent in
writing, neither AHC nor any of the 81% AHC Subsidiaries shall:
(i) (A) in the case of AHC, liquidate, dissolve or wind up its affairs
or (B) in the case of any 81% AHC Subsidiary, liquidate, dissolve or wind
up its affairs unless the assets of such 81% AHC Subsidiary (or, if such
81% AHC Subsidiary shall not be wholly owned, a proportionate amount of
such assets equal to the direct and indirect ownership interest of AHC in
such 81% AHC Subsidiary) shall have been distributed to or otherwise
acquired by AHC and/or any other 81% AHC Subsidiary;
(ii) (A) merge with or into or consolidate with any other person, or
(B) sell, lease or otherwise transfer all or substantially all the assets
of AHC and the 81% AHC Subsidiaries, taken as a whole, (including by means
of the sale of the capital stock of any Subsidiary) to any other person (in
each case, whether in one or a series of transactions), unless, in each
case, such person explicitly agrees to assume the obligations of AHC and
the 81% AHC Subsidiaries under this Agreement, the Tax Matters Agreement or
the Escrow Agreement pursuant to an agreement reasonably satisfactory in
form and substance to BMS and its counsel;
(iii) engage in any recapitalization or restructuring pursuant to
which any cash, securities or other property shall be distributed in
respect of its capital stock or effect any other distribution (by means of
dividend, redemption or otherwise) in respect of its capital stock (other
than, in the case of any 81% AHC Subsidiary, any such distribution to AHC);
(iv) enter into any transactions with affiliates of AHC or any 81% AHC
Subsidiary unless (1) any such transaction is between or among AHC and the
81% AHC Subsidiaries or (2) the terms of such transactions are fair and
reasonable to AHC or the 81% AHC Subsidiaries, as the case may be, as in a
comparable transaction made
<PAGE>
<PAGE>
16
on an arm's length basis between unaffiliated parties; or
(v) agree to or otherwise suffer any of the foregoing in (i), (ii),
(iii) or (iv) above or otherwise take any action or fail to take any action
designed to restrict, reduce or otherwise limit the rights of the BMS
Indemnified Parties under this Agreement, the Tax Matters Agreement or the
Escrow Agreement or the ability of any BMS Indemnified Party to collect any
amount owed to it under this Agreement, the Tax Matters Agreement or the
Escrow Agreement.
(b) For purposes of this Section 5.02, AHC and its Subsidiaries acknowledge
and agree that OnCare and its Subsidiaries shall be considered affiliates of AHC
and the 81% AHC Subsidiaries.
(c) AHC shall cause each of its Subsidiaries that shall be or become an 81%
AHC Subsidiary on or after the date hereof to enter into an agreement,
reasonably satisfactory in form and substance to both BMS and its counsel and
AHC and its counsel, pursuant to which such Subsidiary shall agree to be bound
by the terms of each of this Agreement, the Tax Matters Agreement and the Escrow
Agreement as if such Subsidiary were named an 81% AHC Subsidiary herein and
therein.
(d) The provisions of this Section 5.02 shall terminate as of the sixth
anniversary of the Effective Time; provided, however, that if as of such sixth
anniversary an audit or contest of any Federal income tax return of the
Affiliated Group (as defined in the Tax Matters Agreement) for any taxable year
ending on or before the day on which the Effective Time occurs is in process,
the provisions of this Section 5.02 shall not terminate until such time as any
Tax Claims (as defined in the Tax Matters Agreement) relating to such audit or
contest have been settled and all liabilities related thereto satisfied.
SECTION 5.03. Indemnification Unavailable. In the event that any
indemnification provided in Articles II or III is unavailable for any reason,
each party hereto agrees to contribute in respect of the applicable
indemnification obligation on an equitable basis.
SECTION 5.04. Further Assurances. Consistent with the terms and conditions
hereof, each party hereto
<PAGE>
<PAGE>
17
shall execute and deliver such instruments and take such other actions as the
other parties hereto may reasonably require in order to carry out the
transactions contemplated by the Merger Agreement, this Agreement or any other
Document.
ARTICLE VI
Miscellaneous and General
SECTION 6.01 Amendment. This Agreement may be amended by the parties at any
time. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
SECTION 6.02. Waiver, Remedies. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) waive compliance with any
of the agreements or conditions contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. No delay on
the part of any of the parties hereto in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any waiver on the
part of any of the parties hereto of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor will
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. Unless otherwise provided, the rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties may otherwise have at law or in equity.
SECTION 6.03. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 6.04. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the
<PAGE>
<PAGE>
18
laws of the State of Delaware regardless of the laws that might otherwise govern
under applicable principles of conflicts of laws thereof.
SECTION 6.05. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to BMS, BMS Sub, Axion, OTNC, the
Partnership or OPUS, to:
Bristol-Myers Squibb Company
345 Park Avenue
New York, NY 10154
Attention: Robert E. Ewers, Jr.
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019
Attention: Susan Webster
(b) if to AHC, any 81% AHC Subsidiary or the
Former Axion Stockholders, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
<PAGE>
<PAGE>
19
with a copy to:
Gunderson Dettmer
Stough Villeneuve Franklin
& Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, CA 94304
Attention: Steven M. Spurlock
SECTION 6.06. Successors and Assigns. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
SECTION 6.07. Effect of Expiration. The expiration or termination of this
Agreement for any reason whatsoever shall not release any party hereto from any
liability which at the time of expiration or termination had already accrued to
the other party in accordance with the terms of this Agreement with respect to
any act or omission prior thereto, and the expiration or termination of this
Agreement for any reason shall not affect the continued operations or
enforcement of any provision of this Agreement which, by its express terms, is
to survive expiration or termination.
SECTION 6.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, except that BMS Sub may assign, in its
sole discretion, any of or all its rights, interests and obligations under this
Agreement to BMS or to any direct or indirect wholly owned Subsidiary of BMS,
but no such assignment shall relieve BMS Sub of any of its obligations under
this Agreement. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 6.09. Captions. The Article, Section and paragraph captions herein
are for convenience of reference only, and do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof.
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20
SECTION 6.10. Severability. If any provision of this Agreement or the other
Documents or the application thereof to any person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions thereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
SECTION 6.11. Entire Agreement; No Third Party Beneficiaries. This
Agreement, the other Documents, the Confidentiality Letter and the agreements
referred to herein and therein, and required to be delivered in connection with
the transactions contemplated by the Documents (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) are not intended to confer upon any person or entity other than the
parties any rights or remedies, except that the provisions of Article II and
Article III hereof shall inure to the benefit of the BMS Indemnified Parties and
the AHC Indemnified Parties.
SECTION 6.12. Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal
<PAGE>
<PAGE>
21
jurisdiction by motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated by this Agreement in any court other than a
Federal Court sitting in the State of Delaware or in Delaware state court.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
AXION INC.,
by
------------------------
Name:
Title:
BRISTOL-MYERS SQUIBB COMPANY,
by
------------------------
Name:
Title:
OTN ACQUISITION SUB INC.,
by
------------------------
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
by
------------------------
Name:
Title:
<PAGE>
<PAGE>
22
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by
------------------------
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by
------------------------
Name:
Title:
AXION HEALTHCARE INC.,
by
------------------------
Name:
Title:
OPUS SUB, INC.,
by
------------------------
Name:
Title:
AXION HEALTHCARE INC., as
attorney-in-fact for each of
the Former Axion Stockholders,
by
------------------------
Name:
Title:
<PAGE>
<PAGE>
APPENDIX D
================================================================================
TAX MATTERS AGREEMENT
Dated as of [________], 1996
among
BRISTOL-MYERS SQUIBB COMPANY,
OTN ACQUISITION SUB INC.,
AXION INC.,
OPUS HEALTH SYSTEMS INC.,
ONCOLOGY THERAPEUTICS NETWORK CORPORATION,
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
AXION HEALTHCARE, INC.,
OPUS SUB, INC.,
Certain Subsidiaries of Axion Healthcare, Inc.,
and
Certain shareholders of Axion prior to the Effective Time
================================================================================
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2
TABLE OF CONTENTS
SECTION
Page
----
Tax Matters Agreement
1. Indemnification.................................................... 3
2. Control of Tax Matters............................................. 6
3. Refunds............................................................ 9
4. Allocation Between Taxable Periods................................. 10
5. Cooperation........................................................ 11
6. Transfer Taxes..................................................... 12
7. Post-Effective Time Restructurings................................. 12
8. Tax Sharing Agreements............................................. 13
9. Tax Liabilities.................................................... 13
10. Offsets............................................................ 13
11. Assignment......................................................... 14
12. Survival........................................................... 14
13. Notices............................................................ 14
14. Governing Law...................................................... 14
15. Entire Agreement................................................... 14
16. Counterparts....................................................... 14
17. Severability....................................................... 14
18. Headings........................................................... 15
19. Definitions........................................................ 15
20. Enforcement; Consent to Jurisdiction............................... 15
21. Interpretation..................................................... 15
22. Miscellaneous...................................................... 15
<PAGE>
<PAGE>
3
TAX MATTERS AGREEMENT (the "Agreement") dated as of
[__________], 1996, among BRISTOL-MYERS SQUIBB COMPANY, a
Delaware corporation (on its own behalf and as
representative of Axion, OPUS, OTNC and the Partnership)
("BMS"); OTN ACQUISITION SUB INC., a Delaware corporation
and a wholly owned subsidiary of BMS ("BMS Sub"); AXION
INC., a Delaware corporation ("Axion"); OPUS HEALTH SYSTEMS
INC., a Delaware corporation and a wholly owned subsidiary
of Axion ("OPUS"); ONCOLOGY THERAPEUTICS NETWORK
CORPORATION, a Delaware corporation and a wholly owned
subsidiary of Axion ("OTNC"); ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P., a Delaware limited partnership ("OTN"
or the "Partnership"); AXION HEALTHCARE INC., a Delaware
corporation (on its own behalf and as representative of the
81% AHC Subsidiaries and the Former Axion Stockholders)
("AHC"); OPUS SUB, INC., a Delaware corporation and a wholly
owned subsidiary of OPUS ("OPUS Sub"; and, together with
certain other Subsidiaries of AHC which shall become a party
hereto pursuant to the provisions of Section 22 hereof, the
"81% AHC Subsidiaries"); and all the stockholders of Axion
immediately prior to the Effective Time (as such term is
defined in the Merger Agreement referred to below) (the
"Former Axion Stockholders").
WHEREAS, Axion is currently the common parent of an affiliated group of
corporations (collectively, the "Affiliated Group"; provided, however, that the
"Affiliated Group" shall not include the Partnership or any other entity that
is, prior to the merger, owned directly or indirectly, in whole or in part, by
BMS (such an entity is hereinafter referred to as a "BMS Entity")) filing
consolidated Federal income Tax Returns and unitary or combined state income Tax
Returns ("Consolidated Returns"), pursuant to which Axion and one or more other
members of the Affiliated Group pay Taxes on a consolidated, combined or unitary
basis ("Consolidated Taxes").
WHEREAS, capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings
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<PAGE>
4
assigned to such terms in the Merger Agreement or the Distribution Agreement, as
the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement and plan
of reorganization and distribution embodied in the form of the agreement
attached as Exhibit A to the Merger Agreement (the "Distribution Agreement"),
pursuant to which (a) immediately prior to the Time of Contribution, OTN will
distribute to OTNC which will in turn distribute to Axion the Preference Amount,
(b) immediately prior to the Time of Distribution (i) OPUS will contribute the
OPUS Sub Assets to OPUS Sub and OPUS Sub will assume the OPUS Sub Liabilities,
(ii) OPUS will distribute the outstanding capital stock of OPUS Sub to Axion and
(iii) Axion will contribute all the Assets of Axion and its Subsidiaries
(including the outstanding capital stock of OPUS Sub) other than the OPUS Sub
Assets (which will remain Assets of OPUS Sub) and the Retained Assets to AHC and
AHC will assume all the Liabilities of Axion and its Subsidiaries other than the
OPUS Sub Liabilities (which will remain Liabilities of OPUS Sub) and the
Retained Liabilities (the transactions in clauses (i), (ii) and (iii),
collectively, the "Contributions") and (c) immediately following the
Contributions and immediately prior to the Effective Time (as defined in the
Merger Agreement), subject to the satisfaction or waiver of the conditions set
forth in Article VII of the Distribution Agreement, (i) each issued and
outstanding share of AHC Common Stock, par value $.001 per share ("AHC Common
Stock"), will be converted into a number of shares of AHC Series A Preferred
Stock, par value $.001 per share ("AHC Preferred Stock") as shall be equal to
the quotient of (A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the conversion of Axion Preferred Stock
to Axion Common Stock and the exercise of Axion Options, in each case in
connection with the consummation of the Merger) divided by (B) the number of
shares of AHC Common Stock outstanding immediately prior to the Time of
Distribution, and (ii) the Board of Directors of Axion will cause Axion to
distribute to the holders of Axion Common Stock on a pro rata basis all the then
outstanding shares of AHC Preferred Stock (the "Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the
<PAGE>
<PAGE>
5
obligations of the parties to the Merger Agreement to consummate the Merger;
WHEREAS, BMS, BMS Sub and Axion have entered into an Agreement and Plan of
Merger dated as of August 2, 1996 (the "Merger Agreement") pursuant to which,
following the Distribution, BMS Sub shall merge with and into Axion (the
"Merger") with Axion as the surviving corporation (the "Surviving Corporation")
and in connection with which certain parties will execute the Escrow Agreement
and the Indemnification Agreement (the Contributions, the Distribution, the
Merger and the related agreements and transactions, the "Transactions");
WHEREAS, for Federal income tax purposes, it is intended that (a) the
Distribution shall qualify as a tax-free spinoff under Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code") and (b) the Merger shall
qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the
Code; and
WHEREAS, BMS and Axion desire to allocate the liability for the Taxes (as
defined below) of members of the Affiliated Group for any taxable period
(including short taxable periods and any portion of any taxable period) which
period (or portion) ends on or before the day on which the Effective Time occurs
(a "Pre-Merger Tax Period"), which liability is secured by the escrow created
pursuant to the Escrow Agreement attached to the Merger Agreement, and to
provide for certain other Tax-related matters;
NOW, THEREFORE, in consideration of the covenants contained herein, the
parties agree as follows:
1. Indemnification. (a)(i) AHC, the 81% AHC Subsidiaries and the Former
Axion Stockholders (collectively, the "AHC Indemnifying Parties") shall jointly
and severally indemnify and hold harmless BMS, the Surviving Corporation, OPUS,
OTNC, the Partnership, their affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives (collectively,
the "BMS Indemnified Parties") from all liabilities for Federal, state, local,
foreign and other governmental taxes, assessments, duties, fees, levies or
similar charges of any kind including all interest, penalties and additions
imposed with respect to such amounts (collectively, "Taxes") imposed on Axion,
OPUS, OTNC or any member of the Affiliated Group
<PAGE>
<PAGE>
6
(whether imposed directly or by reason of United States Treasury Regulations
Section 1.1502-76 or similar provisions) (A) for any Pre-Merger Tax Period,
including any Pre-JV Sales Taxes (but excluding any Retained Tax Liabilities),
which are in each case unpaid as of the Effective Time (such indemnified Taxes,
the "Pre-Merger Taxes), (B) with respect to the Contributions, (C) as a result
of the Distribution, (D) as a result of the provision of the OPUS Station Data
to AHC, OnCare or any of their assignees, (E) with respect to the OPUS License
Agreement, or (F) in respect of the transfer of assets or rights from OnCare or
any of its subsidiaries or affiliates or any other affiliate of Axion and its
subsidiaries to Axion prior to the Distribution. The AHC Indemnifying Parties
shall also jointly and severally indemnify the BMS Indemnified Parties from all
liabilities for fifty percent (50%) of the excess of (I) any liability for any
unpaid Taxes (other than JV Sales Taxes) as of June 30, 1996 imposed on the
Partnership for all periods up to and including June 30, 1996 over (II)
$225,000, and 100% of any liability for JV Sales Taxes paid after June 30, 1996
in excess of $667,402; provided, however, that no indemnification shall be
payable with respect to any JV Sales Taxes to the extent payment of such JV
Sales Taxes increased the amount of "Retained Cash" pursuant to clause (c) of
the definition of "Retained Cash" in the Distribution Agreement). "Retained Tax
Liabilities" shall mean (W) any income Tax liability (including any liability
for any Tax measured by reference to income) of OTNC (or the Affiliated Group)
attributable to the allocation to OTNC of Taxable income of the Partnership
(whether or not such Taxes are paid before or after the Effective Time) and any
other Taxes to the extent directly attributable to the operation of the
Partnership, in each case for the period beginning on July 1, 1996, and ending
on the day on which the Effective Time occurs and in each case determined in
accordance with the principles of Section 3(a) and (for the avoidance of doubt),
in the case of Taxes measured by reference to income, by assuming that such
income is subject to Tax at the highest applicable Federal, state and local tax
rate as provided by Section 1(c) hereof, (X) any income Tax liability (including
any liability for any Tax measured by reference to income) to the extent
directly attributable to the reallocation of Partnership income by the IRS or
any other governmental agency from Bristol-Myers Oncology Therapeutics Network
Corporation to OTNC, (Y) all liabilities for any unpaid Taxes as of June 30,
1996 imposed on the Partnership for all periods up to and including June 30,
1996 that are not indemnified by the
<PAGE>
<PAGE>
7
AHC Indemnifying Parties pursuant to the preceding sentence, and (Z) any Tax
liabilities relating to the operations, assets or activities of a BMS Entity
(other than the Partnership). "Pre-JV Sales Taxes" shall mean any liability of
Axion with respect to unpaid sales and use Taxes on sales prior to the date of
formation of the Partnership. "JV Sales Taxes" shall mean any liability of the
Partnership with respect to unpaid sales and use Taxes on sales prior to August
1, 1994.
(ii) BMS, Axion, OTNC, OPUS and the Partnership (collectively, the "BMS
Indemnifying Parties") shall jointly and severally indemnify and hold harmless
AHC, the Subsidiaries, their affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives (collectively,
the "Axion Indemnified Parties") (A) from all liability for Taxes imposed on
Axion, OTNC, OPUS or the Partnership for any Post-Merger Tax Period and (B) for
any Retained Tax Liabilities.
(b) Notwithstanding anything to the contrary set forth herein, the
indemnification obligations of the Former Axion Stockholders under this
Agreement shall be limited to the amounts held in the BMS Stock Escrow Fund (as
such term is defined in the Escrow Agreement). The limitations on the Former
Axion Stockholders' liability under this Section 1(b) shall not apply to any
liability for Taxes relating to or arising from fraud or any misrepresentation
or breach of which Axion, AHC, the 81% AHC Subsidiaries or their respective
officers and directors had knowledge or any intentional failure to perform or
comply with any covenant (collectively, "fraud"), and AHC, the 81% AHC
Subsidiaries and the Former Axion Stockholders shall be jointly and severally
liable for all liabilities for Taxes with respect thereto; provided, however,
that a Former Axion Stockholder shall be liable for Taxes related to or arising
from fraud only with respect to any fraud by such Former Axion Shareholder.
(c) All indemnified liabilities for Taxes and other losses shall be
determined, and all indemnification payments shall be made, on an after-tax
basis to the indemnified party, provided that each indemnified party shall be
assumed to pay taxes at the highest applicable effective federal, state and
local rate and each indemnified party shall initially determine the amount of
any claim for indemnification and whether to treat a particular item of expense
as a tax deduction or a particular receipt as
<PAGE>
<PAGE>
8
taxable income, and shall submit any such determination for approval to the
indemnifying party reasonably promptly. If the indemnifying party, within 30
days after receipt of such notification, notifies the indemnified party that it
does not approve of such determination, then AHC and BMS shall proceed in good
faith to negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction (subject to Section 20 of this Agreement).
(d) Any indemnification payments due to the AHC Indemnified Parties with
respect to clause (W) of the definition of of "Retained Tax Liabilities" shall,
to the extent that payments in respect of such Retained Tax Liabilities were
made prior to the Effective Time, be paid within twenty (20) days of date on
which the Effective Time occurs.
2. Control of Tax Matters. (a)(i) Except as provided in paragraph (ii)
below and subject to Section 3 below, Axion hereby designates, and agrees to
cause each of its Subsidiaries (including, without limitation, the Partnership)
to so designate, AHC as its agent to take any and all actions, at AHC's sole
expense, necessary or incidental to the preparation of Tax Returns, the
determination of Tax liability and the filing of any and all forms (including,
subject to Sections 2(d) and 3, any forms relating to any refund of Taxes for
which the AHC Indemnifying Parties are liable pursuant to Section 1(a)(i)
(collectively, "AHC Taxes)) (A) relating to all Pre-Merger Tax Periods (other
than the portion of any Pre-Merger Tax Period that is a Straddle Period, as
defined below) and (B) until December 31, 1996, relating to all Pre-JV Sales
Taxes and all JV Sales Taxes (provided that AHC agrees to use reasonable
commercial efforts to eliminate, prior to December 31, 1996, all liabilities for
JV Sales Taxes and Pre-JV Sales Taxes); provided that Axion shall only be deemed
to have made such designation with respect to Tax Returns signed by Ernst &
Young LLP, or another nationally recognized accounting firm selected by AHC and
reasonably acceptable to BMS as return preparers and to other forms or
determinations of Tax liability the accuracy and completeness of which have been
certified by Ernst & Young LLP, or another nationally recognized accounting firm
selected by AHC and reasonably acceptable to BMS, to the same extent as if they
had been a return preparer.
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9
(ii) Notwithstanding the foregoing, AHC hereby designates, and agrees to
cause each of its Subsidiaries to so designate, BMS as its agent to take any and
all actions, at BMS's sole expense, necessary or incidental to the preparation
of Tax Returns, the determination of Tax liability and the filing of any and all
forms (including any forms relating to any refund of Taxes for which the BMS
Indemnifying Parties are liable pursuant to Section 1(a)(ii) (collectively, "BMS
Taxes")) relating (A) to any Post-Merger Tax Period, (B) to the portion of any
Pre-Merger Tax Period that is a Straddle Period, provided, however, that any
determination and reporting of Taxes for any Straddle Period shall be made
jointly by AHC and BMS, (C) solely to Taxes payable by the Partnership for any
taxable period other than, with respect to periods prior to December 31, 1996,
all JV Sales Taxes, and (D) to any Pre-JV Sales Taxes that remain unpaid after
December 31, 1996.
(b) Prior to the Effective Time, Axion shall, and shall cause AHC and each
other member of the Affiliated Group to, (i) accurately prepare and timely file
with the relevant Taxing Authority all Tax Returns and reports ("Post-Signing
Returns") required to be filed by Axion or any member of the Affiliated Group at
or before the Effective Time, (ii) timely pay all Taxes due and payable by Axion
or any member of the Affiliated Group at or before the Effective Time, (iii)
make adequate provision on their books and records, to the extent required in
accordance with GAAP, for all Taxes due and payable after the Effective Time,
and (iv) promptly notify BMS of any action, suit, proceeding, claim or audit
pending against or with respect to Axion, AHC or any other member of the
Affiliated Group in respect of any Taxes where there is a reasonable possibility
of a determination or decision which could have a material adverse effect on
Axion's or any of its affiliate's, Tax liabilities or Tax attributes.
(c) Except with the prior written consent of BMS, which shall not be
unreasonably withheld, and subject to Section 3, each of Axion and AHC shall
refrain, and shall cause each of its respective subsidiaries to refrain, from
(i) making any material Tax election other than consistent with past practice
that would bind BMS or any member of the BMS affiliated group or otherwise
materially affect the Tax liability of the Affiliated Group or (ii) making,
filing or amending any material Tax Return that includes any Pre-Merger Tax
Period that (A) is inconsistent with the existing and historic method used by
the Affiliated Group in
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10
calculating the taxable income of the Affiliated Group, or (B) would otherwise
materially affect the Tax liability of BMS, Axion or any direct or indirect
subsidiary of BMS or Axion for any Tax period (or portion) that is not a
Pre-Merger Tax Period (a "Post-Merger Tax Period").
(d) [Intentionally omitted]
(e)(i) If (A) a claim relating to Taxes (a "Tax Claim") shall be made by
any Taxing authority, which, if successful, might result in an indemnity payment
to any BMS Indemnified Party pursuant to Section 1(a)(i) of this Agreement
(other than a Tax Claim relating solely to Taxes payable by the Partnership),
(B) the AHC Indemnifying Parties admit in writing their obligation to indemnify
the BMS Indemnified Party for the Tax Claim, (C) (i) no proceeding shall have
been commenced and no petition shall have been filed seeking relief in respect
of AHC or any of its Subsidiaries, or of a substantial part of their respective
property or assets, under Title 11 of the United States Code as now constituted
or hereafter amended, or seeking the appointment of a receiver, trustee or
similar official for AHC or any of its Subsidiaries or for a substantial part of
their respective property or assets, or seeking the winding up or liquidation of
AHC or any of its Subsidiaries and (ii) none of AHC or any of its Subsidiaries
shall have made a general assignment for the benefit of creditors or become
unable, admitted in writing its inability or failed generally to pay its debts
as they become due, (D) the Tax Claim is the only material Tax issue involving
the BMS Indemnified Party involved in a proceeding, and (E) Ernst & Young LLP,
or another nationally recognized accounting firm selected by AHC and reasonably
acceptable to BMS, certifies in writing to BMS that there is a reasonable basis
for the defense against such Tax Claim, then AHC shall control all proceedings
taken in connection with the Tax Claim (including selection of counsel) and,
without limiting the foregoing, may in its sole discretion pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with any
Taxing authority with respect thereto, and may, in its sole discretion, either
pay such Tax Claim and sue for a refund where applicable law permits such refund
suits or contest the Tax Claim in any permissible manner. In such a case AHC
shall keep the BMS Indemnified Party reasonably informed of developments in the
proceeding. In all cases involving a Tax Claim that might result in an indemnity
payment to any BMS Indemnified Party, BMS shall reasonably promptly notify
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11
AHC thereof and each BMS Indemnified Party shall use its reasonable best efforts
to cause that Tax Claim to be determined in a proceeding separate from other Tax
issues involving the BMS Indemnified Party or any affiliate thereof. If the BMS
Indemnified Party cannot accomplish this separation of the Tax Claim so that
such claim and other material Tax Claims involving the BMS Indemnified Party or
any affiliate thereof have to be determined in a single proceeding, or if any of
the other conditions set forth in the first sentence of this Section 2(e)(i) are
not satisfied, then, to the maximum extent permitted, AHC shall be entitled to
participate in the proceeding through its own counsel and the BMS Indemnified
Party shall consult with AHC with regard to pursuing or foregoing administrative
appeals, proceedings, hearings and conferences with any Taxing authority and
whether or not to pay the Tax Claim and sue for a refund or to contest the Tax
in some other manner. However, except as provided in the following sentence,
decisions as to the method of contesting Taxes in such a proceeding shall be
made by the BMS Indemnified Party but AHC shall control all other aspects of the
contest, including the decisions as to whether to settle or continue to contest
the Tax Claim. Notwithstanding the foregoing, without the consent of AHC the BMS
Indemnified Party shall not pursue such Tax Claim in a forum that requires the
payment of the disputed Taxes as a pre-condition to contesting such Tax Claim if
there is a forum available that does not require such payment, unless BMS
advances the amount of such Taxes until the time at which such Taxes are
considered to be payable pursuant to Section 9 of this Agreement.
(ii) Subject to Section 2(e)(i) above, if a Tax Claim shall be made by any
Taxing authority, which, if successful, might result in an indemnity payment to
any Axion Indemnified Party pursuant to Section 1(a)(ii) of this Agreement, then
Axion or BMS shall control all proceedings taken in connection with the Tax
Claim (including selection of counsel) and, without limiting the foregoing, may
in its sole discretion pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with any Taxing authority with respect
thereto, and may, in its sole discretion, either pay such Tax Claim and sue for
a refund where applicable law permits such refund suits or contest the Tax Claim
in any permissible manner. In such a case Axion or BMS shall keep the Axion
Indemnified Party reasonably informed of developments in the proceeding.
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12
3. Refunds. Notwithstanding anything to the contrary in this Agreement, AHC
will not amend, and will cause each AHC Indemnifying Party not to amend, any Tax
return for any Pre-Closing Tax Period that would result in a refund of Taxes
(except a refund claim made as a precondition to contesting an asserted Tax
Claim for a Pre-Merger Tax Period (as defined below)), unless (i) such refund
claims in the aggregate do not exceed $500,000 or (ii) AHC places the full
amount of each such refund into an escrow account established solely to secure
any Tax Claim that may result from such refund claim and that will not, without
the consent of BMS (which consent shall not be unreasonably withheld), terminate
prior to the expiration of the applicable statute of limitations or, if earlier,
the date of a "determination" (as defined in Section 1313 of the Code) with
respect to such refund claim.
AHC shall promptly pay to BMS the amount of any Tax refund relating to BMS
Taxes that is received by AHC or any of its Subsidiaries (a "BMS Refund"). BMS
shall promptly pay to AHC the amount of any Tax refund relating to AHC Taxes
that is received by BMS or any of its Subsidiaries (an "AHC Refund").
4. Allocation Between Taxable Periods. (a) In the case of any taxable
period that includes but does not end on the day on which the Effective Time
occurs (a "Straddle Period"),
(i) real, personal and intangible property Taxes, other than transfer
and similar Taxes ("Property Taxes"), allocated to the Pre-Merger Tax
Period shall be equal to the amount of such Property Taxes for the entire
Straddle Period multiplied by a fraction, the numerator of which is the
number of days during the Straddle Period that are in the Pre-Merger Tax
Period and the denominator of which is the number of days in the Straddle
Period; and
(ii) all Taxes (other than Property Taxes) for the Pre-Merger Tax
Period shall be computed based on an actual closing of the books as if such
taxable period ended as of the close of business on the Effective Date and,
in the case of any Taxes attributable to the ownership of any equity
interest in any partnership or other "flow through" entity, based on an
actual closing of the books as if the taxable period of such partnership or
other "flow through" entity ended as of
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13
the close of business on the Effective Date; provided, however, that all
transfers and transactions (including Taxes attributable thereto) which
occur to effectuate the Distribution or the Merger shall be allocated to
the Pre-Merger Tax Period.
(b) Without limiting the foregoing provisions of this Section 4 setting
forth the principles for allocating income, gain, loss, deduction, credits,
events or transfers between Pre-Merger and Post-Merger Tax Periods, and any
Straddle Period, BMS, Axion and each of their relevant Subsidiaries, and AHC and
each of its Subsidiaries, (i) shall file, or cause to be filed, all relevant Tax
Returns and execute, or cause to be executed, such other documents as may be
required by any Taxing authority, on the basis that the Distribution and the
Merger shall occur for Tax purposes as of the close of business on the day
before the day on which the Effective Time occurs and shall refrain from taking
any position inconsistent with such basis with any Taxing authority unless the
relevant Taxing authority will not accept a Tax return filed on such basis, (ii)
each agree to report the Distribution as a tax-free spin-off under Section 355
of the Code and the Merger as a tax-free reorganization under Section 368 of the
Code on all Tax Returns, and to take no position inconsistent therewith, except
if there is a "determination" (as defined Section 1313 of the Code) to the
effect that such position is incorrect or as otherwise required to contest a
claim by a Taxing authority that such position is incorrect or to file amended
state or local Tax Returns as required by law by reason of an adverse
preliminary or final determination (including an audit assessment by a Federal
Taxing authority), and (iii) agree to file all Tax Returns on the basis that any
taxable period that includes the day on which the Effective Time occurs ends on
such date unless the relevant Taxing authority will not accept a Tax Return
filed on such basis.
(c) The determination of all Taxes imposed on the Partnership for all
periods up to and including June 30, 1996, or for all periods beginning on or
after July 1, 1996, shall be made on the principles set forth in Section 3(a)
above.
5. Cooperation. BMS, Axion and AHC each agree to cooperate with one another
and to cause each of its Subsidiaries to so cooperate, in a timely manner
consistent with existing practice, in filing any return, form or
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<PAGE>
14
consent contemplated by this Agreement. Each party also agrees to take, and will
cause the appropriate Subsidiary to take, such action or actions as each other
party may reasonably request with respect to the Tax matters contemplated by
this Agreement, including but not limited to the timely filing of requests for
the extension of time within which to file Tax Returns, and the signing of and
timely filing of such waivers, consents, forms, court petitions, refund claims,
complaints, powers of attorney and other documents needed from time to time in
order to file Tax Returns and defend, prosecute or resolve deficiencies or
claims as provided herein. Each of AHC and BMS further agrees to furnish timely,
and to cause each of its subsidiaries to so furnish, the other with any and all
information reasonably requested by the other in connection with this Agreement
and the transactions contemplated by this Agreement, whether such information
relates to a period before or after the Effective Time; provided, however, that
any valuations of OnCare, OPUS and AHC made by Axion or its advisors shall be
placed in escrow and shall be made available as provided in Section 5.4 of the
Distribution Agreement. Without limiting the generality of the foregoing
sentence, AHC specifically agrees to provide to BMS, reasonably promptly, copies
of any correspondence or notices received from the Internal Revenue Service or
any other Taxing authority with respect to Taxes of the Affiliated Group for a
Pre-Merger Tax Period, and BMS agrees to provide the same to Axion within the
same time period.
Each party hereto shall retain all books and records relating to Taxes
until the later of (i) ten years after the Effective Time and (ii) expiration of
the applicable statute of limitations.
6. Transfer Taxes. Axion shall cause AHC to pay or cause to be paid all
transfer, documentary, sales, use, registration, value-added and other similar
Taxes (including all applicable real estate transfer Taxes and real property
transfer gains Taxes) and related amounts (including any penalties, interest and
additions to any such Tax) incurred in connection with, or as a result of, the
Transactions. AHC shall pay all New York State stock transfer taxes due with
respect to the Transactions, and shall be entitled to any rebate thereof.
7. Post-Effective Time Restructurings. BMS shall refrain from, and shall
cause each BMS Indemnifying Party to refrain from, causing Axion, OTNC, OPUS or
the Partnership
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<PAGE>
15
from taking any action between the Closing and the beginning of the day after
the day on which the Effective Time occurs, other than in the ordinary course of
business or as contemplated by the Merger Agreement and the agreements,
Documents and other items referred to in Section 9.06 of the Merger Agreement;
provided, however, that BMS shall refrain from, and shall cause each BMS
Indemnifying Party to refrain from, undertaking the restructuring of its
ownership of Axion, OTNC, Bristol-Myers Oncology Therapeutic Network, Inc. or
the Partnership until the beginning of the day after the day on which Effective
Time occurs.
8. Tax Sharing Agreements. As of the Effective Time, AHC shall cause all
Tax sharing agreements (other than this Agreement) or arrangements to which
Axion or any Subsidiary thereof (immediately before the Merger) is a party to be
terminated, including without limitation any formal or informal agreement or
arrangement with OnCare, with no further obligations or liabilities of Axion or
any such Subsidiary thereof.
9. Tax Liabilities. For purposes of this Agreement, and for purposes of the
Escrow Agreement as it relates to Taxes, a liability for Taxes shall not be
deemed liquidated and therefore payable until the earlier of (i) the date that a
Tax Return has been filed as provided herein showing such Tax to be due and
payable (other than with respect to a Tax Claim for which BMS is required to
advance Taxes pursuant to the final sentence of Section 2(e)(i)) or (ii) there
shall be a "determination" (as defined in Section 1313 of the Code) that such
Tax is due and payable.
10. Offsets. (a) No payment shall be required to be made by any AHC
Indemnifying Party to any BMS Indemnifying Party, or by any BMS Indemnifying
Party to any AHC Indemnifying Party, as the case may be, pursuant to this
agreement to the extent that there is an amount then due and payable under this
Agreement to an AHC Indemnifying Party by a BMS Indemnifying Party, or to a BMS
Indemnifying Party by an AHC Indemnifying Party, as the case may be.
(b) The amount of any payment required to be made by any AHC Indemnifying
Party to any BMS Indemnified Party pursuant to this Agreement or the
Indemnification Agreement shall be reduced to the extent that Axion shall
actually have received, prior to the date such payment is required to be made,
an actual tax benefit in a Post-Merger Period by
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<PAGE>
16
reason of a deduction resulting from the disposition by a Former Axion
Stockholder of shares of BMS Stock acquired in the Merger in exchange for Axion
Stock that was issued pursuant to the exercise of an incentive stock option
(within the meaning of Section 422 of the Code). BMS shall cause Axion to claim
any such deduction of which BMS or Axion is aware, including, without
limitation, pursuant to notice provided to Axion by AHC.
11. Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties hereto and their respective successors and assigns.
12. Survival. The provisions of this Agreement shall survive the Effective
Time and remain in full force until all periods of limitations, including any
extension or waiver periods, for all Taxes covered by this Agreement have
expired.
13. Notices. Any notices, payments or other communications required by this
Agreement shall be made as provided in Section 9.02 of the Merger Agreement,
except that such notices, payments or other communications shall be addressed to
each party's Director of Taxes.
14. Governing Law. The principles and provisions of Section 9.07 of the
Merger Agreement shall apply to this Agreement.
15. Entire Agreement. This Agreement, the Merger Agreement and the
agreements, Documents and other items referred to in Section 9.06 of the Merger
Agreement (a) constitute the entire agreement and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and (b) are not intended to confer upon any
person other than the parties hereto any rights or remedies. The parties agree
that to the extent the provisions of any other agreements executed in connection
with the Distribution or the Merger are inconsistent with the provisions of this
Agreement with respect to Tax Matters, the provisions of this Agreement shall
prevail.
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17
16. Counterparts. The principles and provisions of Section 9.05 of the
Merger Agreement shall apply to this Agreement.
17. Severability. If any provision of this Agreement or the application of
any such provision to any person or circumstances shall be held invalid, illegal
or unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof.
18. Headings. Headings of sections in this Agreement are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
19. Definitions. Unless otherwise indicated, any capitalized term not
defined in this Agreement shall have the meaning given to such term by the
Merger Agreement.
20. Enforcement; Consent to Jurisdiction. The provisions of Section 6.12 of
the Post-Closing Covenants and Indemnification Agreement shall apply to this
Agreement.
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18
21. Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words "included", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation". All accounting
terms not defined in this Agreement shall have the meanings determined by GAAP.
22. Miscellaneous. The provisions of Section 5.02(c) of the Post-Closing
covenants and Indemnification Agreement shall apply to this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
BRISTOL-MYERS SQUIBB COMPANY,
by_____________________________________
Name:
Title:
AXION INC.,
by_____________________________________
Name:
Title:
AXION HEALTHCARE, INC.,
by_____________________________________
Name:
Title:
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19
ONCOLOGY THERAPEUTICS NETWORK
JOINT VENTURE, L.P.,
by_____________________________________
Name:
Title:
AXION HEALTHCARE, INC., as
agent for and on behalf of the
81% AHC Subsidiaries and the
Former Axion Stockholders,
by_____________________________________
Name:
Title:
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION,
by_____________________________________
Name:
Title:
OPUS HEALTH SYSTEMS INC.,
by_____________________________________
Name:
Title:
OPUS SUB, INC.,
by_____________________________________
Name:
Title:
<PAGE>
<PAGE>
APPENDIX E
================================================================================
ESCROW AGREEMENT
dated as of [_____], 1996
among
BRISTOL-MYERS SQUIBB COMPANY, on its own behalf
and as representative
of Axion, OPUS, OTNC and
the Partnership,
AXION HEALTHCARE INC., on its own behalf and as
representative of the 81% AHC Subsidiaries and the former
stockholders of Axion Inc.,
OPUS SUB, INC.,
THE OTHER 81% AHC SUBSIDIARIES,
THE FORMER STOCKHOLDERS OF AXION INC.
and
[ESCROW AGENT]
================================================================================
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION
1. Deposit of Escrowed Property ............................... 3
2. Disposition of Escrowed Property............................ 6
3. Distributions for Indemnified Obligations................... 12
4. Pending Claims.............................................. 15
5. Investments; Disposition of Income.......................... 16
6. Concerning the Escrow Agent................................. 17
7. Appointment of Representative as
Attorney-in-Fact.......................................... 19
8. Certificates................................................ 20
9. Notices..................................................... 20
10. Termination and Limitations
on Indemnified Obligation................................. 21
11. Taxes....................................................... 22
12. Successors and Assigns...................................... 22
13. Assignment.................................................. 22
14. Captions.................................................... 22
15. Severability................................................ 22
16. Entire Agreement; No Third Party
Beneficiaries............................................. 23
17. Enforcement Consent to Jurisdiction......................... 23
18. Interpretation.............................................. 23
<PAGE>
<PAGE>
ESCROW AGREEMENT (the "Agreement") dated as of [_____],
1996, among BRISTOL-MYERS SQUIBB COMPANY, a Delaware
corporation (on its own behalf and as representative of
Axion, OPUS, OTNC and the Partnership) ("BMS"), AXION
HEALTHCARE INC., a Delaware corporation (on its own behalf
and as representative of the 81% AHC Subsidiaries and the
Former Axion Stockholders (as each such term is defined
herein)("AHC"), OPUS SUB, INC. ("OPUS Sub" and, together
with certain other Subsidiaries of AHC which shall become a
party hereto pursuant to the provisions of Section 5.02(c)
of the Indemnification Agreement referred to below, the "81%
AHC Subsidiaries"), all the stockholders of Axion Inc., a
Delaware corporation ("Axion"), immediately prior to the
Effective Time (as such term is defined in the Merger
Agreement referred to below) (the "Former Axion
Stockholders") (the Former Axion Stockholders together with
AHC and the 81% AHC Subsidiaries, collectively, the "AHC
Indemnifying Parties"), and [ESCROW AGENT], a [_____]
banking corporation (the "Escrow Agent").
WHEREAS, BMS, OTN Acquisition Sub Inc., a Delaware corporation and a wholly
owned subsidiary of BMS ("BMS Sub"), and Axion have entered into an Agreement
and Plan of Merger dated as of July 31, 1996 (the "Merger Agreement"), providing
for the merger of BMS Sub with and into Axion, with Axion as the Surviving
Corporation (the "Merger"), following the Distribution (as defined below);
WHEREAS, capitalized terms used in this Agreement and not otherwise defined
herein shall have the meanings assigned to such terms in the Merger Agreement or
the Distribution Agreement, as the case may be;
WHEREAS, the Board of Directors of Axion has approved an agreement and plan
of reorganization and distribution embodied in the form of the agreement
attached as Exhibit A to the Merger Agreement (the "Distribution Agreement"),
pursuant to which (a) immediately prior to the Time of Contribution (as defined
in the Distribution Agreement), OTN will distribute to OTNC which will in turn
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2
distribute to Axion the Preference Amount (as defined in the Distribution
Agreement), (b) immediately prior to the Time of Distribution (as defined in the
Distribution Agreement), (i) OPUS will contribute the OPUS Sub Assets (as
defined in the Distribution Agreement) to OPUS Sub and OPUS Sub will assume the
OPUS Sub Liabilities (as defined in the Distribution Agreement), (ii) OPUS will
distribute the outstanding capital stock of OPUS Sub to Axion and (iii) Axion
will contribute all the Assets (as defined in the Distribution Agreement) of
Axion and its Subsidiaries (including the outstanding capital stock of OPUS Sub)
other than the OPUS Sub Assets (which will remain Assets of OPUS Sub) and the
Retained Assets (as defined in the Distribution Agreement) to AHC and AHC will
assume all the Liabilities (as defined in the Distribution Agreement) of Axion
and its Subsidiaries other than the OPUS Sub Liabilities (which will remain
Liabilities of OPUS Sub) and the Retained Liabilities (as defined in the
Distribution Agreement) (the transactions in clauses (i), (ii) and (iii),
collectively, the "Contributions") and (c) immediately following the
Contributions and immediately prior to the Effective Time (as defined in the
Merger Agreement), subject to the satisfaction or waiver of the conditions set
forth in Article VII of the Distribution Agreement, (i) each issued and
outstanding share of AHC Common Stock, par value $.001 per share ("AHC Common
Stock"), will be converted into a number of shares of AHC Series A Preferred
Stock, par value $.001 per share ("AHC Preferred Stock") as shall be equal to
the quotient of (A) the number of shares of Axion Common Stock outstanding
immediately prior the Time of Distribution (including any shares of Axion Common
Stock issued in connection with the conversion of Axion Preferred Stock to Axion
Common Stock and the exercise of Axion Options, in each case in connection with
the consummation of the Merger) divided by (B) the number of shares of AHC
Common Stock outstanding immediately prior to the Time of Distribution, and (ii)
the Board of Directors of Axion will cause Axion to distribute to the holders of
Axion Common Stock on a pro rata basis all the then outstanding shares of AHC
Preferred Stock (the "Distribution");
WHEREAS, the execution and delivery of this Agreement by the parties hereto
is a condition to the obligations of the parties to the Merger Agreement to
consummate the Merger;
WHEREAS, the parties to this Agreement, as a condition to their obligations
to consummate the Merger,
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3
have also entered into the Indemnification Agreement and the Tax Matters
Agreement to govern certain matters in connection with the Contributions, the
Distribution and the Merger; and
WHEREAS, the escrow created pursuant hereto secures the continued
performance by the AHC Indemnifying Parties of each of the AHC Indemnifying
Party's respective obligations under Section 2.01 of the Indemnification
Agreement and Section 1 of the Tax Matters Agreement.
NOW, THEREFORE, in consideration of the execution of the Merger Agreement
and the representations, warranties, covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Deposit of Escrowed Property. (a) Promptly upon the execution of this
Agreement, the following events shall occur:
(i) The Exchange Agent, on behalf of the Former Axion Stockholders,
shall deposit into escrow, and the Escrow Agent shall acknowledge receipt
of, a number of shares of BMS Common Stock equal to $5,000,000 divided by
the Average Value of BMS Common Stock, rounded to the nearest whole share,
which amount shall be deemed to have been deposited by the Former Axion
Stockholders on a pro rata basis from the shares of BMS Common Stock to be
issued and delivered to each Former Axion Stockholder with respect to its
shares of Axion Common Stock pursuant to Section 2.02(b) of the Merger
Agreement, calculated based on the ratio of the number of shares of BMS
Common Stock to be so issued and delivered to such Former Axion Stockholder
with respect to its shares of Axion Common Stock to the aggregate number of
shares of BMS Common Stock to be so issued to all the Former Axion
Stockholders with respect to their shares of Axion Common Stock. Such
shares together with any dividends and distributions with respect to such
shares as set forth in Section 1(b) below and any income received from the
investment thereof, as on deposit or invested from time to time in
accordance with the terms of this Agreement are hereinafter referred to as
the "Escrowed Shares". Each Escrowed Share shall be registered in the name
of AHC, as representative of the Former Axion Stockholders, endorsed in
blank or accompanied by stock powers executed in blank, in proper form for
transfer; and
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4
(ii) AHC shall deposit, or cause to be deposited, into escrow, and the
Escrow Agent shall acknowledge receipt of, $5,000,000 in cash. Such cash,
together with any income received thereon, as on deposit or invested from
time to time in accordance with the terms of this Agreement, shall
hereinafter be referred to as the "Escrowed Cash" (the Escrowed Shares and
the Escrowed Cash together being the "Escrowed Property").
(b) During the term of this Agreement, BMS shall, from time to time and
concurrently with the payment thereof, (i) deliver to the Escrow Agent for
deposit in accordance with the terms hereof, all non-taxable stock dividends and
other non-taxable distributions made with respect to the Escrowed Shares and
(ii) deliver to the Escrow Agent, who shall promptly distribute the same to the
Former Axion Stockholders, all cash distributions and other taxable
distributions (other than taxable distributions representing the proceeds of a
sale or acquisition of BMS or a substantial restructuring in connection with a
sale or acquisition of or by BMS) made with respect to the Escrowed Shares. All
such distributions to the Former Axion Stockholders pursuant to clause (ii)
above shall be allocated among them based on the ratio of the number of shares
of BMS Common Stock received by each Former Axion Stockholder at the Closing
with respect to such Former Axion Stockholder's shares of Axion Common Stock to
the aggregate number of shares of BMS Common Stock received by all Former Axion
Stockholders at the Closing with respect to all Former Axion Stockholders'
shares of Axion Common Stock. All dividends and all other distributions made on
or in respect of an Escrowed Share that are not required to be distributed to
the Former Axion Stockholders as provided pursuant to clause (ii) above, whether
resulting from a stock split, subdivision, combination or reclassification of
the outstanding capital stock of BMS or received in exchange for such Escrowed
Share or any part thereof, or in redemption thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which BMS may
be a party or otherwise, shall (together with the Escrowed Share in respect of
which such dividends or distributions were received) be and become part of and
be considered for purposes of Section 2(c) such Escrowed Share. Any such
dividend or distribution received that is so treated as part of an Escrowed
Share will be held by the Escrow Agent in the form in which such dividend or
distribution was received.
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<PAGE>
5
If any dividends or distributions made on or in respect of an Escrowed
Share that are not required to be distributed to the Former Axion Stockholders
as provided pursuant to clause (ii) above are received by any Former Axion
Stockholder prior to the release of such Escrowed Share to such Former Axion
Stockholder in accordance with the provisions of this Agreement, such dividends
or distributions shall not be commingled by such Former Axion Stockholder with
any of its other funds or property but shall be held separate and apart
therefrom, shall be held in trust for the benefit of the Escrow Agent and shall
be forthwith delivered to the Escrow Agent in the same form as so received (with
any necessary endorsement).
(c) BMS and each AHC Indemnifying Party acknowledge and agree that, to the
extent and so long as any of the Escrowed Property is held by the Escrow Agent
hereunder, BMS shall have, as of and from the date such Escrowed Property is
received by the Escrow Agent, a perfected first priority security interest in
such Escrowed Property to secure the payment of the amount, if any, payable by
an AHC Indemnifying Party pursuant to Section 2.01 of the Indemnification
Agreement and Section 1 of the Tax Matters Agreement. In connection therewith,
each AHC Indemnifying Party expressly agrees (i) that the Escrow Agent is acting
solely as BMS's agent to the extent necessary to perfect BMS's first priority
security interest in the Escrowed Property and (ii) to execute and deliver such
instruments as BMS may from time to time reasonably request for the purpose of
evidencing and perfecting such security interest. In the event that any cash
portion of the Escrowed Shares is invested pursuant to Section 5, the Escrow
Agent shall take all actions necessary, including, but not limited to,
appropriate identification on the Escrow Agent's books and records, to ensure
that all such investments are deemed held by the Escrow Agent as BMS's agent for
the purpose of perfecting BMS's first-priority security interest therein.
(d) Each of BMS and each of the AHC Indemnifying Parties agree that the
Escrowed Shares shall be voted by the Escrow Agent with respect to all matters
as to which the holders of BMS Common Stock are entitled to vote in accordance
with written instructions from AHC as the representative of the Former Axion
Stockholders. AHC hereby agrees that if any Former Axion Stockholder provides
AHC with written directions as to how to vote the Escrowed Shares with respect
to any matter, AHC shall instruct the
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6
Escrow Agent to vote such number of Escrowed Shares as are beneficially held for
such Former Axion Stockholder (calculated based on the ratio of the number of
shares of BMS Common Stock received by such Former Axion Stockholder at the
Closing with respect to such Former Axion Stockholder's shares of Axion Common
Stock to the aggregate number of shares of BMS Common Stock received by all
Former Axion Stockholders at the Closing with respect to all Former Axion
Stockholders' shares of Axion Common Stock) as so directed by such Former Axion
Stockholder, and if no such directions are received with respect to particular
Escrowed Shares on any matter for which such Escrowed Shares may be voted, AHC
shall direct the Escrow Agent to abstain from voting such Escrowed Shares with
respect to such matter.
2. Disposition of Escrowed Property. (a) The Escrow Agent shall hold the
Escrowed Property in its possession until authorized in writing hereunder to
deliver such Escrowed Property as follows:
(i) At any time on or prior to the Escrowed Cash Termination Date (as
defined in Section 10), BMS may deliver a Certificate (as defined in
Section 8) to the Escrow Agent requesting delivery of Escrowed Property to
BMS, and the Escrow Agent shall deliver the Escrowed Property to BMS to the
extent and at the time provided in accordance with Section 3 hereof;
provided, however, that no distribution of Escrowed Property shall be made
in respect of any Indemnified Obligation (as defined in Section 3(a))
related to a liability for Taxes for which a BMS Indemnified Party (as
defined in Section 3(a)) is indemnified pursuant to Section 1 of the Tax
Matters Agreement unless and until such time as such liability for Taxes
shall be deemed liquidated and therefore payable in accordance with the
provisions of Section 9 of the Tax Matters Agreement, (ii) after the
Escrowed Shares Termination Date (as defined in Section 10 below), no
Escrowed Shares shall be released to BMS except with respect to an Escrowed
Shares Pending Claim (as defined in Section 2(a)(ii) below)) and (iii)
after the Second Anniversary Date (as defined in Section 2(a)(iii) below),
Second Anniversary Cash shall be released to BMS only with respect to
Second Anniversary Pending Claims (as defined in Section 2(a)(iii) below).
For purposes of the foregoing, the amount of Second Anniversary Cash as of
any date shall equal the excess, if any, of the amount of Escrowed Cash on
deposit with the Escrow Agent on
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7
such date over the amount specified in clause (A) of the definition of
"Retained Escrow Amount (as defined in Section 2(a)(iii) below) calculated
as of such date.
(ii) Immediately following the Escrowed Shares Termination Date, if
either (A) both BMS and AHC deliver a Certificate to the Escrow Agent or
(B) the Escrow Agent (I) receives a Certificate from AHC, (II) delivers a
copy of such Certificate to BMS and (III) does not, within 15 business days
following delivery of such Certificate to BMS, receive written notice from
BMS objecting to such Certificate given by AHC, the Escrow Agent shall
deliver to AHC as the representative of the Former Axion Stockholders such
number of Escrowed Shares (rounded to the nearest whole share) that equals,
when multiplied by the Average Value of BMS Common Stock, the excess, if
any, of (x) the number of Escrowed Shares on deposit with the Escrow Agent
on the Escrowed Shares Termination Date multiplied by the Average Value of
BMS Common Stock over (y) the amount of any unpaid Escrowed Shares Pending
Claims (as defined below) on the Escrowed Shares Termination Date.
Thereafter, if as of the last day of any fiscal quarter following the
Escrowed Shares Termination Date, Escrowed Shares remain on deposit with
the Escrow Agent, and either (A) both BMS and AHC deliver a Certificate to
the Escrow Agent or (B) the Escrow Agent (I) receives a Certificate from
AHC, (II) delivers a copy of such Certificate to BMS and (III) does not,
within 15 business days following delivery of such Certificate to BMS,
receive written notice from BMS objecting to such Certificate given by AHC,
the Escrow Agent shall deliver to AHC as the representative of the Former
Axion Stockholders the number of Escrowed Shares that equals, when
multiplied by the Average Value of BMS Common Stock, the excess, if any, of
(x) the number of Escrowed Shares on deposit with the Escrow Agent on the
last day of such fiscal quarter multiplied by the Average Value of BMS
Common Stock over (y) the amount of any unpaid Escrowed Shares Pending
Claims on the last day of such fiscal quarter. "Escrowed Shares Pending
Claims" shall mean all the Pending Claims (as defined in Section 4 below)
existing on the Escrowed Shares Termination Date. The amount of any
Escrowed Shares Pending Claim on any date shall be determined in accordance
with the provisions of Section 4.
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8
(iii) Immediately following the second anniversary of the date of this
Agreement (the "Second Anniversary Date"), if either (A) both BMS and AHC
jointly deliver a Certificate to the Escrow Agent or (B) the Escrow Agent
(I) receives a Certificate from AHC, (II) delivers a copy of such
Certificate to BMS and (III) does not, within 15 business days following
delivery of such Certificate to BMS, receive written notice from BMS
objecting to the Certificate given by AHC, the Escrow Agent shall deliver
to AHC an amount in cash equal to the excess, if any, of Escrowed Cash on
deposit with the Escrow Agent as of the Second Anniversary Date over the
Retained Escrow Amount on the Second Anniversary Date. Thereafter, if as of
the last day of any fiscal quarter following the Second Anniversary Date,
Escrowed Cash remains on deposit with the Escrow Agent and either (A) both
BMS and AHC deliver a Certificate to the Escrow Agent or (B) the Escrow
Agent (I) receives a Certificate from AHC, (II) delivers a copy of such
Certificate to BMS and (III) does not, within 15 business days following
delivery of such Certificate to BMS, receive written notice from BMS
objecting to such Certificate given by AHC, the Escrow Agent shall deliver
to AHC an amount in cash equal to the excess, if any, of Escrowed Cash on
deposit with the Escrow Agent as of the last day of such fiscal quarter
over the Retained Escrow Amount as of the last day of such fiscal quarter.
"Retained Escrow Amount" shall mean, as of any date, the sum of (A) an
amount, if any, equal to the excess of $1,000,000 over (i) the aggregate
amount, if any, of Escrowed Cash that shall have been released during the
period from the Second Anniversary Date to such date in respect of any
Pending Claim that was not an existing Pending Claim at any time on or
prior to the Second Anniversary Date and (ii) the aggregate amount, if any,
released to AHC pursuant to Section 2(a)(iv) below from and after the
Escrowed Cash Termination Date and
(B) the amount of any unpaid Second Anniversary
Pending Claims (as defined below) on such date. "Second Anniversary Pending
Claims" shall mean all the Pending Claims existing on the Second
Anniversary Date (and, for the avoidance of doubt, shall include all
Escrowed Shares Pending Claims existing on such date). The amount of any
Second Anniversary Pending Claim on any date shall be determined as
provided in Section 4, provided that, for all purposes of this Section
2.01(a)(iii), the amount of unpaid Second Anniversary Pending Claims on
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9
the last day of any fiscal quarter ending after the Second Anniversary Date
shall be reduced by an amount equal to (x) the number of Escrowed Shares on
deposit with the Escrow Agent on the last day of such fiscal quarter (such
number to be determined based on the assumption that any Escrowed Shares
that are to be delivered to AHC as the representative of the Former AHC
Stockholders in respect of the last day of such fiscal quarter as provided
in the second sentence of Section 2(a)(ii) above shall have been so
delivered and shall not be on deposit with the Escrow Agent on the last day
of such fiscal quarter), if any, multiplied by (y) the Average Value of BMS
Common Stock.
(iv) Immediately following the Escrowed Cash Termination Date, if
either (A) both BMS and AHC deliver a Certificate to the Escrow Agent or
(B) the Escrow Agent (I) receives a Certificate from AHC, (II) delivers a
copy of such Certificate to BMS and (III) does not, within 15 business days
following delivery of such Certificate to BMS, receive written notice from
BMS objecting to such Certificate given by AHC, the Escrow Agent shall
deliver to AHC an amount equal to the excess, if any, of Escrowed Cash on
deposit with the Escrow Agent as of the Escrowed Cash Termination Date
(calculated as provided below) over an amount equal to any unpaid Final
Pending Claims (as defined below) on the Escrowed Cash Termination Date.
Thereafter, if as of the last day of any fiscal quarter following the
Escrowed Cash Termination Date Escrowed Cash remains on deposit with the
Escrow Agent and either (A) both BMS and AHC deliver a Certificate to the
Escrow Agent or (B) the Escrow Agent (I) receives a Certificate from AHC,
(II) delivers a copy of such Certificate to BMS and (III) does not, within
15 business days following delivery of such Certificate to BMS, receive
written notice from BMS objecting to such Certificate given by AHC, the
Escrow Agent shall deliver to AHC an amount equal to the excess, if any, of
Escrowed Cash on deposit with the Escrow Agent as of the last day of such
fiscal quarter (calculated as provided below) over an amount equal to any
unpaid Final Pending Claims on the last day of such fiscal quarter. For
purposes of this Section 2.01(a)(iv), the amount of any Escrowed Cash on
deposit with the Escrow Agent shall be calculating by treating the amount,
if any, of Escrowed Cash that is to be delivered to AHC pursuant to Section
2.01(a)(iii) on such date as having
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10
been so delivered and as not being on deposit with the Escrow Agent on such
date. "Final Pending Claims" shall mean all Pending Claims existing on the
Escrowed Cash Termination Date (and, for the avoidance of doubt, shall
include all Escrowed Shares Pending Claims and Second Anniversary Pending
Claims existing on such date). The amount of any Final Pending Claim on any
date shall be determined as provided in Section 4, provided that, for
purposes of this Section 2.01(a)(iv) the amount of unpaid Final Pending
Claims on the last day of any fiscal quarter ending after the Escrowed Cash
Termination Date shall be reduced by an amount equal to (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the last day of such
fiscal quarter (such number to be determined based on the assumption that
any Escrowed Shares that are to be delivered to AHC as the representative
of the Former AHC Stockholders in respect of the last day of such fiscal
quarter is provided in the second sentence of Section 2(a)(ii) above shall
have been so delivered and shall not be on deposit with the Escrow Agent on
the last day of such fiscal quarter), if any, multiplied by (y) the Average
Value of BMS Common Stock.
(v) Either BMS or AHC may deliver to the Escrow Agent a Certificate
accompanied by a final and nonappealable award or order of a court of
competent jurisdiction (a "Court Order") with respect to the payment of all
or any portion of the Escrowed Property requesting delivery of Escrowed
Property to BMS, AHC or such other person(s) as may be specified in such
award or order. Such Certificate also shall be accompanied by an opinion of
outside counsel to the effect that the applicable court award or order is
final and nonappealable. In either such case, the Escrow Agent shall
deliver all or a portion of the Escrowed Property to BMS or AHC, as the
case may be, in the amount specified in the Court Order.
(vi) If AHC shall have delivered to the Escrow Agent and BMS at any
time within 30 days before or after the due date (including extensions) for
payment by AHC of its final Federal income tax liability for a taxable year
(or, if later, 30 days after the Escrow Agent supplies all information
relating to the income realized with respect to the Escrowed Cash necessary
to prepare the Certificate referred to in this Section 2.01(a)(vi) a
Certificate setting forth the amount of
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11
Federal and State of California income tax due from AHC with respect to any
taxable income realized with respect to the Escrowed Cash for such taxable
year (based on the assumption that AHC is, with respect to such income,
subject to Federal and State of California income tax at the highest
regular marginal tax rate applicable to corporations for such year), and
the accuracy and completeness of such Certificate shall be certified by
Ernst & Young, LLP, or such other nationally recognized accounting firm
chosen by AHC and reasonably satisfactory to BMS, then the Escrow Agent
shall pay to AHC in cash the amount set forth in such Certificate no more
than fifteen days after receipt of such Certificate. The Escrow Agent shall
use commercially reasonable efforts to supply to AHC the tax information
referred to above prior to the start of the 60-day period referred to
above.
(b) All distributions hereunder that are not the subject of a dispute shall
be made no later than 20 days from receipt of a Certificate and shall be made
from the Escrowed Shares and/or the Escrowed Cash, as the case may be, in
accordance with Section 2(a) above. Distributions made to BMS pursuant to
Section 2(a)(i) above shall first be made from any Escrowed Shares on deposit
and then, to the extent so required, from any Escrowed Cash. Distributions made
pursuant to Section 2(a)(vi) shall be deemed to have been made from the Escrowed
Cash.
(c) In the case of any distribution of Escrowed Shares pursuant to this
Agreement, each Escrowed Share so distributed shall be valued at a price per
share equal to the Average Value of BMS Common Stock and all such distributions
shall be rounded to the nearest whole share. All Escrowed Shares distributed to
AHC pursuant to this Agreement shall be distributed by AHC pro rata to the
Former Axion Stockholders based on the ratio of the number of shares of BMS
Common Stock received by such Former Axion Stockholder at the Closing with
respect to such Former Axion Stockholder's shares of Axion Common Stock to the
aggregate number of shares of BMS Common Stock received by all Former Axion
Stockholders at the Closing with respect to all Former Axion Stockholders'
shares of Axion Common Stock.
(d) Upon any distribution of Escrowed Property pursuant to this Agreement,
BMS's security interest in the Escrowed Property to the extent of such
distribution shall
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12
be, and shall be deemed to be, released and discharged as of and from the moment
of such release from escrow.
(e) In the case of each of Sections 2(a)(ii), 2(a)(iii) and 2(a)(iv), if
BMS delivers to the Escrow Agent written notice objecting to any Certificate
from AHC requesting the release of the Escrowed Property, such notice shall
specify the disputed amount of such release request and the amount not in
dispute. Notwithstanding anything to the contrary set forth in this Section 2,
the Escrow Agent shall be authorized to deliver to AHC (as the representative of
the Former Axion Stockholders in the case of any delivery of Escrowed Shares)
the amount of such release request not in dispute, subject to and in accordance
with the applicable provision of Section 2(b) hereof.
3. Distributions for Indemnified Obligations. (a) At any time on or prior
to the Escrowed Cash Termination Date, BMS may deliver to the Escrow Agent a
Certificate (i) stating that (A) a BMS Indemnified Party has incurred an
Indemnifiable Loss against which such BMS Indemnified Party is entitled to be
indemnified pursuant to Section 2.01 of the Indemnification Agreement or (B) a
BMS Indemnified Party is liable for Taxes against which such BMS Indemnified
Party is entitled to be indemnified pursuant to Section 1 of the Tax Matters
Agreement (each, an "Indemnified Obligation"), (ii) stating the aggregate amount
of such Indemnified Obligation (or, in the case of an unliquidated Indemnified
Obligation, a good faith and reasonable estimate thereof) and (iii) specifying
in reasonable detail the nature of each item included in such Indemnified
Obligation (an "Indemnification Item"), the amount thereof and the date on which
such Indemnification Item was paid or incurred; provided, however, that BMS may
not deliver to the Escrow Agent a Certificate stating that a BMS Indemnified
Party is liable for Taxes against which such BMS Indemnified Party is entitled
to be indemnified pursuant to Section 1 of the Tax Matters Agreement unless and
until any of the following shall have occurred: (a) a Tax Return shall have been
filed as provided in the Tax Matters Agreement showing such Taxes to be due and
payable and the full amount of such Taxes shall not have been paid at the time
such Tax Return was filed; (b) a Taxing Authority shall have asserted in writing
or determined that there is a deficiency with respect to such Taxes; (c) except
with respect to any claim for indemnification for Taxes relating in any respect
to (i) the Contributions, the Distribution, the Merger or any of the other
Transactions, (ii) any sales
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13
or use Taxes, other than (A) Pre-JV Sales Taxes, (B) JV Sales Taxes and (C) any
liability of any BMS Indemnified Party with respect to unpaid sales and use
taxes on rentals of OPUS Station machines, and (iii) the distribution of the
stock of OnCare, Inc. by Axion, BMS shall have received an opinion of a
nationally recognized accounting firm or law firm reasonably acceptable to AHC
that it is more likely than not that such Taxes will be properly payable; or (d)
there shall have been a "determination" (as defined in Section 1313 of the Code)
that such Taxes are due and payable. For purposes of this Agreement, "BMS
Indemnified Party" shall have the meaning assigned to such term in the
Indemnification Agreement or the Tax Matters Agreement, as applicable. Any
Certificate delivered pursuant to this Section with respect to any unliquidated
Indemnified Obligation may be supplemented by a later Certificate specifying in
greater detail the items set forth therein. Upon delivery of any such
Certificate, the Escrow Agent shall, within five days of receipt thereof,
deliver a written notice together with a copy of such Certificate to AHC.
(b) If AHC objects to the Indemnified Obligation specified in such
Certificate, AHC shall, within 10 business days after delivery of the written
notice containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent shall deliver a copy of such Reply
Certificate to BMS. BMS and AHC shall negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
(c) If no Reply Certificate is delivered with respect to any Certificate or
any Indemnification Item contained therein, then AHC shall be deemed to have
acknowledged BMS's right to receive any amount or amounts specified in such
Certificate (or the undisputed portion thereof), and the Escrow Agent shall
transfer to BMS, Escrowed Property in an amount equal to the undisputed amount
claimed in such Certificate (plus interest at a rate per annum equal to the
prime rate announced from time to time by The Chase Manhattan Bank on such
amount from the later of (i) the date of such Certificate and (ii) the date
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14
such indemnified amount was actually incurred by the applicable Indemnified
Party), all in accordance with the procedures set forth in Section 2(b).
(d) If the Escrow Agent receives a Reply Certificate in a timely manner,
the disputed amount requested for reimbursement pursuant to the applicable
Certificate shall be held by the Escrow Agent and shall not be released to BMS
except in accordance with either (i) written instructions signed by each of an
authorized officer of BMS and AHC or (ii) the final nonappealable judgment of a
court having jurisdiction over the matters relating to the claim by the
applicable Indemnified Party for indemnification from AHC accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date the portion of the amount due to such
Indemnified Party determined pursuant to (i) or (ii) in this paragraph 3(d)
shall promptly be paid to BMS in accordance with the procedures set forth in
Section 2(b).
(e) The parties hereto agree that the payment of Indemnified Obligations
contemplated by this Section is not, and shall not be deemed to be, a waiver of
any right, claim or amount to which BMS may be entitled under the
Indemnification Agreement, the Tax Matters Agreement or otherwise, including,
without limitation, any claim relating to an Indemnified Obligation, to the
extent that the amount paid to BMS pursuant hereto is insufficient to satisfy
the entire amount of any such Indemnified Obligation.
(f) Notwithstanding anything to the contrary set forth in Section 2 or
Section 3 hereof, upon receipt of written notice from the Escrow Agent
containing a copy of a Certificate relating to an Indemnified Obligation the
final amount of which shall have been liquidated, AHC may elect to pay to BMS
such amount in cash in lieu of payment being made from the Escrowed Property if
AHC, within ten business days after delivery of the written notice containing a
copy of the Certificate, shall have delivered to BMS and the Escrow Agent a
written notice stating its election to make such cash payment and, thereafter,
shall have made such cash payment to BMS on the earliest date that a payment of
Escrowed Property would otherwise be made hereunder with respect to such
Indemnified Obligation; provided, however, that such Indemnified Obligation
shall constitute a Pending Claim for all purposes of this Agreement until the
time the
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15
full amount of such cash payment is actually received by BMS.
4. Pending Claims. (a) For purposes of this Agreement, "Pending Claims"
shall mean, at any time, (a) all indemnification claims with respect to which a
Certificate shall have been delivered at or prior to such time with respect to
which the final amount of such claims shall have been liquidated and which shall
not have been paid in full at such time whether because the payment of such
amount is in dispute or otherwise and (b) all indemnification claims with
respect to which a Certificate shall have been delivered and with respect to
which the final amount of such claim shall not have been liquidated.
(b) The amount of any Pending Claim as of any date shall be equal to BMS's
reasonable estimate of such amount. If any Pending Claim shall exist on the last
day of any fiscal quarter during the term of this Agreement, not later than 10
business days after the last day of such fiscal quarter, BMS shall deliver to
the Escrow Agent a Certificate (a "Quarterly Certificate") setting forth BMS's
reasonable estimate of the amount of each then existing Pending Claim as of the
last day of such fiscal quarter, provided that, if BMS shall not deliver a
Quarterly Certificate in respect of any fiscal quarter or shall not include in
such Quarterly Certificate all Pending Claims existing on the last day of such
fiscal quarter, the amount of each Pending Claim (or the amount of any Pending
Claim not included in such Quarterly Certificate, as applicable) shall be the
amount of each such Pending Claim set forth in the most recent Certificate
(including any Quarterly Certificate) delivered by BMS to the Escrow Agent in
respect of the amount of such Pending Claim, provided further that failure of
BMS to deliver a Quarterly Certificate in respect of any fiscal quarter shall
not affect in any manner the obligations of the AHC Indemnifying Parties
hereunder or under the Indemnification Agreement or the Tax Matters Agreement or
the rights of BMS or any other BMS Indemnified Party hereunder or thereunder.
(c) If AHC reasonably objects to the amount of any Pending Claim specified
in any Certificate delivered pursuant to this Section 4, AHC shall, within 10
business days after delivery of such Certificate, deliver to the Escrow Agent a
Certificate (the "Amount Certificate"), (i) specifying each such amount to which
AHC reasonably objects and (ii) specifying in reasonable detail the nature
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16
and basis for each such objection. Within five business days of delivery to the
Escrow Agent of the Amount Certificate, the Escrow Agent shall deliver a copy of
such Amount Certificate to BMS. BMS and AHC shall negotiate in good faith for a
period of 30 days after delivery by the Escrow Agent to BMS of such Amount
Certificate to reach a written resolution of any matters raised in the Amount
Certificate and, if such matters are not resolved within a 30-day period, either
party may bring an action to resolve such dispute as provided in Section 17.
Notwithstanding the foregoing, the amount of any Pending Claim with respect to
which an Amount Certificate shall have been delivered shall be for all purposes
of this Agreement the amount reasonably determined by BMS as provided in Section
4(b) above unless and until such time as the Escrow Agent either (a) receives
written instructions signed by an authorized officer of each of BMS and AHC
adjusting the amount of such Pending Claim or (b) the final nonappealable
judgment of a court having jurisdiction over the matters relating to the claim
by the applicable BMS Indemnified Party for indemnification from any AHC
Indemnifying Party adjusting the amount of such Pending Claim accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date, in the event that the Escrow Agent shall have
received an Amount Certificate from AHC within the time frame set forth above,
the amount of the Pending Claim for all purposes of this Agreement shall be
adjusted to the amount determined pursuant to clauses (a) or (b) of this
sentence.
5. Investments; Disposition of Income. The Escrow Agent agrees that it
shall invest the Escrowed Cash and the cash portion of the Escrowed Shares, in
(i) direct obligations of, or obligations fully guaranteed by, the United States
of America or any agency thereof having a maturity of not more than 180 days,
(ii) certificates of deposit of the Escrow Agent or any commercial bank in the
United States of America having total capital surplus and undivided profits in
excess of $500,000,000 and (iii) securities approved jointly in writing by BMS
and AHC, all as the parties hereto, from time to time, shall jointly instruct
the Escrow Agent to do in writing. Any income received by the Escrow Agent from
investments of the Escrowed Property pursuant to this Section 5 shall be added
to the Escrowed Property and distributed as provided in this Agreement. Upon
liquidation of an investment of the Escrowed Property, the Escrowed Property
shall be deposited into a non-interest bearing account pending receipt of
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17
written investment instructions from BMS and AHC as provided in this Section 5
or Certificate or other disbursement instruction as provided in Section 2.
6. Concerning the Escrow Agent. (a) The Escrow Agent shall not be required
to invest any funds held hereunder except as directed pursuant to Section 5.
Uninvested funds held hereunder shall not earn or accrue interest.
(b) This Agreement expressly sets forth all the duties of the Escrow Agent
with respect to any and all matters pertinent hereto. No implied duties or
obligations shall be read into this agreement against the Escrow Agent. The
Escrow Agent shall not be bound by the provisions of any agreement among the
other parties hereto except this Agreement. The Escrow Agent's duties shall be
ministerial in nature.
(c) The Escrow Agent shall not be liable, except for its own gross
negligence or wilful misconduct, and, except with respect to claims based upon
such gross negligence or wilful misconduct that are successfully asserted
against the Escrow Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless the Escrow Agent (and any successor Escrow Agent)
from and against any and all losses, liabilities, claims, actions, taxes,
damages and expenses, including, without limitation, reasonable attorneys' fees
and disbursements, arising out of or in connection with this Agreement
including, without limitation, the legal costs and expenses of defending itself
against any claim or liability in connection with its performance hereunder. The
Escrow Agent further agrees that all Escrowed Property shall be available for
withdrawal on not less than two business days' prior written notice.
(d) The Escrow Agent shall be entitled to rely upon any order, judgment,
certification, demand, notice, instrument or other writing delivered to it
hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give notice or receipt or advice or make any statement or execute any
document in connection with the provisions hereof has been duly authorized to do
so.
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(e) The Escrow Agent may act pursuant to the advice of counsel with respect
to any matter relating to this Agreement and shall not be liable for any action
taken or omitted in accordance with such advice.
(f) The Escrow Agent does not have any interest in the Escrowed Property
deposited hereunder but is serving as escrow agent only and having only
possession thereof. The parties agree that any income realized with respect to
the Escrowed Cash shall be treated for all purposes as income of AHC, and any
income realized with respect to the Escrowed Shares shall be treated for all
purposes as income of the Former Axion Stockholders. Any payments of income from
this Agreement shall be subject to withholding regulations then in force with
respect to United States taxes. The parties hereto will provide the Escrow Agent
with appropriate W-9 forms for tax identification, number certification, or
nonresident alien certifications. This paragraph and paragraph (c) shall survive
notwithstanding any termination of this Agreement or the resignation of the
Escrow Agent.
(g) The Escrow Agent makes no representation as to the validity, value,
genuineness or the collectibility of any security or other documents or
instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any party as to the
wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor Escrow Agent) may at any time
resign as such by delivering the Escrowed Property, subject to subparagraph (1)
below, to any successor Escrow Agent jointly designated by the other parties
hereto in writing, or to any court of competent jurisdiction, whereupon the
Escrow Agent shall be discharged of and from any and all further obligations
arising in connection with this Agreement. The resignation of the Escrow Agent
will take effect on the earlier of (i) the appointment of a successor (including
a court of competent jurisdiction) or (ii) the day which is 30 days after the
date of delivery of its written notice of resignation to the other parties
hereto. If at that time the Escrow Agent has not received a designation of a
successor Escrow Agent, the Escrow Agent's sole responsibility after that time
shall be to safekeep the Escrowed Property until receipt of a
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19
designation of successor Escrow Agent or a joint written disposition instruction
by the other parties hereto or a final and nonappealable order of a court of
competent jurisdiction.
(j) In the event of any disagreement between the other parties hereto
resulting in adverse claims or demands being made in connection with the
Escrowed Property, or in the event that the Escrow Agent in good faith is in
doubt as to what action it should take hereunder, the Escrow Agent shall be
entitled to retain the Escrowed Property until the Escrow Agent shall have
received (i) a final nonappealable order of a court of competent jurisdiction
directing delivery of the Escrowed Property or (ii) a written agreement executed
by the other parties hereto directing delivery of the Escrowed Property, in
which event the Escrow Agent shall disburse the Escrowed Property in accordance
with such order or agreement. Any court order referred to in (i) above shall be
accompanied by a legal opinion of outside counsel satisfactory to the Escrow
Agent to the effect that said court order is final and nonappealable. The Escrow
Agent shall act on such court order and legal opinions without further question.
(k) The Escrow Agent shall be paid $[ ] annually. All fees shall be paid in
United States currency and payable in the United States at the office of the
Escrow Agent. It is understood that the Escrow Agent's fees may be adjusted from
time to time to conform with its then current guidelines. Such fees shall be
paid in equal proportions by BMS, on the one hand, and AHC, on the other hand.
(l) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or written instruction
given by the parties hereto.
(m) The Escrow Agent shall not be required to institute legal proceedings
of any kind and shall not be required to initiate or defend any legal
proceedings which may be instituted against it in respect of the subject matter
of this Agreement. If the Escrow Agent does elect to act it will do so only to
the extent that it is indemnified to its satisfaction against the cost and
expense of such defense or initiation.
7. Appointment of Representative as Attorney-in-Fact. The appointment of
AHC as the representative of each
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20
Former Axion Stockholder pursuant to the Letter of Transmittal and each 81% AHC
Subsidiary pursuant to Section 6.01 of the Indemnification Agreement is hereby
confirmed. The parties hereto agree that the Escrow Agent may rely on such
appointment.
8. Certificates. For the purposes of this Agreement, a "Certificate" shall
mean a written certificate specifying the claim asserted hereunder, containing
appropriate instructions for delivery of Escrowed Property, containing the
information relevant to the Section of the Agreement pursuant to which such
Certificate is delivered and certified as to its accuracy by the person
delivering such Certificate.
9. Notices. All notices, Certificates or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent prepaid telex, cable or telecopy (with hard copy to follow), or
sent, postage prepaid, by registered, certified or express mail, or reputable
overnight courier service and shall be deemed given when so delivered by hand,
telexed, cabled or telecopied or if mailed, when received, as follows:
(a) if to BMS, to:
Bristol-Myers Squibb Company
345 Park Avenue
New York, New York 10154
Attention: Robert E. Ewers, Jr.
with copies to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attention: Susan Webster
<PAGE>
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21
(b) if to any AHC Indemnifying Party, to:
Axion HealthCare Inc.
1111 Bayhill Drive, Suite 125
San Bruno, CA 94066
Attention: Garrett J. Roper
with copies to:
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
600 Hansen Way, 2nd Floor
Palo Alto, CA 94304
Attention: Steven M. Spurlock
(c) if to the Escrow Agent, to:
Attention:
10. Termination and Limitations on Indemnified Obligation. (a) For purposes
of this Agreement, (i) the "Escrowed Shares Termination Date" shall mean the
earlier to occur of (A) one year after the date of this Agreement and (B)
complete distribution of the Escrowed Shares in satisfaction of claims for
Indemnified Obligations, and (ii) the "Escrowed Cash Termination Date" shall
mean the earlier to occur of (A) six years after the date of this Agreement and
(B) complete distribution of the escrowed cash in satisfaction of claims for
Indemnified Obligations.
(b) Notwithstanding anything to the contrary set forth in this Agreement,
none of the occurrence of the Escrowed Shares Termination Date or Escrowed Cash
Termination Date or the termination of this Agreement for any other reason shall
release any AHC Indemnifying Party from its obligations under Section 2.01 of
the Indemnification Agreement, Section 1 of the Tax Matters Agreement, any
Indemnified Obligation or any Pending Claim, and all such obligations shall
remain in full force and effect until such time as they have been satisfied in
accordance with the terms of the Indemnification Agreement or the Tax Matters
Agreement, as the case may be.
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22
11. Taxes. All interest and other amounts received with respect to the
Escrowed Cash shall be income for tax purposes to AHC and shall be reported by
the Escrow Agent to the Internal Revenue Service as having been so allocated.
All amounts received with respect to the Escrowed Stock shall be income for tax
purposes to the Former Axion Stockholders and shall be reported by the Escrow
Agent to the Internal Revenue Service as having been so allocated. Each of AHC
and each Former Axion Stockholder shall complete and return to the Escrow Agent
any and all tax forms or reports required to be maintained or obtained by the
Escrow Agent. The Escrow Agent shall provide to each of AHC and each Former
Axion Stockholder all necessary forms reporting any amounts received with
respect to the Escrowed Cash or the Escrowed Stock, as the case may be.
12. Successors and Assigns. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
13. Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
14. Captions. The Section and paragraph captions herein are for convenience
of reference only, and do not constitute part of this Agreement and shall not be
deemed to limit or otherwise affect any of the provisions hereof.
15. Severability. If any provision of this Agreement or the other Documents
or the application thereof to any person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions thereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and
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23
equitable substitute provision to effect the original intent of the parties.
16. Entire Agreement; No Third Party Beneficiaries. This Agreement, the
other Documents and the agreements referred to herein and therein, and required
to be delivered in connection with the transactions contemplated by the
Documents (a) constitute the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement and (b) are not intended to
confer upon any person or entity other than the parties any rights or remedies.
17. Enforcement; Consent to Jurisdiction. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any court of
the United States located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are entitled at law or
in equity. In addition, each of the parties hereto (a) consents to submit itself
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal Court sitting
in the State of Delaware or in Delaware state court.
18. Interpretation. When a reference is made in this Agreement to a
Section, Schedule or Exhibit, such reference shall be to a Section, Schedule or
Exhibit of this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "included",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words
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24
"without limitation". All accounting terms not defined in this Agreement shall
have the meanings determined by GAAP.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
BRISTOL-MYERS SQUIBB COMPANY,
by
---------------------------
Name:
Title:
AXION HEALTHCARE INC.,
by
---------------------------
Name:
Title:
[OPUS SUB, INC.],
by
---------------------------
Name:
Title:
------------------------
Axion Healthcare Inc., as
Attorney-in-Fact for and on
behalf of each of the following
former Stockholders of AXION
INC. set forth on Exhibit A
hereto
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25
[ESCROW AGENT], as Escrow Agent,
by
---------------------------
Name:
Title:
<PAGE>
<PAGE>
Appendix F
Delaware General Corporation Law Section 262 APPRAISAL RIGHTS. (a) Any
stockholder of a corporation of this State who holds shares of stock on the date
of the making of a demand pursuant to subsection (d) of this section with
respect to such shares, who continuously holds such shares through the effective
date of the merger or consolidation, who has otherwise complied with subsection
(d) of this section and who has neither voted in favor of the merger or
consolidation nor consented thereto in writing pursuant to ss. 228 of this title
shall be entitled to an appraisal by the Court of Chancery of the fair value of
his shares of stock under the circumstances described in subsections (b) and (c)
of this section. As used in this section, the word "stockholder" means a holder
of record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest of a
member of a nonstock corporation; and the words "depository receipt" mean a
receipt or other instrument issued by a depository representing an interest in
one or more shares, or fractions thereof, solely of stock of a corporation,
which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the holders of the surviving corporation as
provided in subsections (f) or (g) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
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2
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the
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3
corporation, not less than 20 days prior to the meeting, shall notify each of
its stockholders who was such on the record date for such meeting with respect
to shares for which appraisal rights are available pursuant to subsections (b)
or (c) hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares shall
deliver to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
his shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do so
by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or 258
of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and shall
include in such notice a copy of this section. The notice shall be sent by
certified or registered mail, return receipt requested, addressed to the
stockholder at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of the notice, demand in writing from the surviving or resulting
corporation the appraisal of his shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and that
the stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding
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4
the foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit
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5
their certificates of stock to the Register in Chancery for notation thereon of
the pendency of the appraisal proceedings; and if any stockholder fails to
comply with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
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6
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which his prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
<PAGE>
<PAGE>
INFORMATION STATEMENT RELATING TO
AXION HEALTHCARE INC.
AND THE DISTRIBUTION
INTRODUCTION
This Information Statement is being furnished to stockholders of Axion
Inc., a Delaware corporation ("Axion"), in connection with the contemplated pro
rata distribution (the "Distribution") to Axion stockholders of shares of Series
A Preferred Stock, par value $.0001 per share ("AHC Preferred Stock"), of Axion
HealthCare Inc., a Delaware corporation and wholly owned subsidiary of Axion
("AHC"). The holders of shares of common stock of Axion, par value $.001 per
share ("Axion Common Stock"), will receive one share of AHC Preferred Stock with
respect to each share of Axion Common Stock held by such holder on the record
date for the Distribution (the "Distribution Record Date"). The Distribution
will result in 100% of the then outstanding shares of AHC Preferred Stock being
distributed to Axion stockholders on a share-for-share basis. The Distribution
is being effected by Axion in connection with the acquisition by Bristol-Myers
Squibb Company, a Delaware corporation ("BMS"), of Axion and its oncology drug
distribution-related business interests, which consist of: (i) Oncology
Therapeutics Network Corporation, a Delaware corporation and wholly owned
subsidiary of Axion ("OTNC"), including OTNC's interest in the Oncology
Therapeutics Network Joint Venture, L.P., a Delaware limited partnership that
(the "Partnership" or "OTN"), and (ii) Axion's OPUS station automated drug
dispensing and inventory tracking systems business (the "OPUS Station
Business"), including in each case the assets and certain liabilities related
thereto (the "Retained Business"). The acquisition by BMS will be pursuant to a
merger (the "Merger") of OTN Acquisition Sub Inc., a Delaware corporation and
wholly owned subsidiary of BMS ("BMS Sub"), with and into Axion following the
Distribution, with Axion surviving the Merger (sometimes hereinafter referred to
as the "Surviving Corporation").
At the time of the Distribution, AHC will own all of Axion's business,
assets and liabilities, other than the Retained Business, which includes the
stock of OPUS Sub and certain other tangible and intangible assets and
liabilities of Axion and its subsidiaries including 2,700,000 shares of Series A
Redeemable Preferred Stock of OnCare Inc. (the "OnCare Preferred Stock"), a
Delaware corporation ("OnCare"), and an amount in cash equal to the Preference
Amount (as defined herein), plus all other cash of Axion and its subsidiaries,
excluding the Retained Cash (as defined herein) (such stock, cash and other
assets and liabilities, the "Acquired Business"). Immediately prior to the Time
of Distribution (as defined herein), the Acquired Business will be transferred
to AHC by Axion in accordance with the Agreement and Plan of Distribution and
Reorganization to be entered into prior to the Distribution among Axion, AHC,
OTNC, OPUS Health Systems Inc., a Delaware corporation and a wholly owned
subsidiary of Axion ("OPUS"), OPUS Sub Inc., a Delaware corporation and wholly
owned subsidiary of OPUS ("OPUS Sub") and OTN, the form of which is an Exhibit
to the Merger Agreement (as defined below) and which is attached as Appendix B
to the Proxy Statement/Prospectus dated _________, 1996 (the "Proxy
Statement/Prospectus") (as such form may be amended, supplemented or otherwise
modified from time to time, the "Distribution Agreement"). This Information
Statement (the "Information Statement") is attached as Appendix G to the Proxy
Statement/Prospectus. See "AHC".
No consideration will be paid by Axion stockholders for the shares of AHC
Preferred Stock to be received by them in the Distribution. There is currently
no public trading market for the shares of AHC Preferred Stock.
The Distribution has not yet been declared by the Axion Board of Directors
(the "Axion Board"), and, accordingly, the Distribution Record Date has not yet
been determined. The Distribution is conditioned on, among other things, the
satisfaction of all conditions (other than consummation of the Distribution) to
the parties' obligations to consummate the Merger provided for in the Agreement
and Plan of Merger, dated as of August 2, 1996 (as it may be amended,
supplemented or otherwise modified from time to time, the "Merger Agreement"),
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<PAGE>
among Axion, BMS and BMS Sub, which is attached as Appendix A to the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G. See "The Distribution -- Terms of the Distribution Agreement -- Conditions to
the Distribution". Also see "The Merger --Terms of the Merger Agreement; --
Conditions."
NO VOTE OF STOCKHOLDERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION.
AHC IS NOT ASKING YOU FOR A PROXY IN CONNECTION WITH THE DISTRIBUTION.
The date of this Information Statement is ________, 19 96.
2
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<PAGE>
TABLE OF CONTENTS
INTRODUCTION .............................................................. 1
SUMMARY ................................................................... 1
SPECIAL FACTORS ........................................................... 9
Risks Associated with New Business Strategy ............................... 9
Relationship with BMS ..................................................... 11
Reliance on Transitional Services Agreement ............................... 11
Repayment of Loans to Current Holders of Axion Options .................... 12
Competition ............................................................... 12
Dependence Upon Key Personnel ............................................. 12
Management Information Systems ............................................ 12
Dependence on Third-Party Service Providers ............................... 13
Tax Free Nature of Distribution ........................................... 13
Stockholders are urged to consult their own tax advisors regarding
such tax consequences ................................................... 13
Absence of Trading Market; Restrictions on Resale ......................... 14
Future Acquisitions; Dilution ............................................. 14
Reimbursement-Related Risks ............................................... 14
Substantial Stockholders; Certain Provisions of the Certificate
of Incorporation ........................................................ 15
OnCare Series A Redeemable Preferred Stock ................................ 15
THE COMPANY ............................................................... 16
Industry .................................................................. 16
Trademarks ................................................................ 18
THE MERGER ................................................................ 18
Terms of the Merger Agreement ............................................. 18
Fractional Shares ......................................................... 20
Effective Time; Closing ................................................... 20
Distribution of Merger Consideration; Exchange of
Share Certificates .................................................... 20
Stock Exchange Listing .................................................. 20
Conditions .............................................................. 21
Termination ............................................................. 21
Accounting Treatment .................................................... 21
THE DISTRIBUTION .......................................................... 21
The Preference Amount ................................................... 22
The Contributions ....................................................... 23
The Distribution ........................................................ 25
Conditions to the Distribution .......................................... 25
Termination, Amendments and Waivers ..................................... 26
Terms of the Indemnification Agreement .................................... 26
Indemnification by the AHC Indemnifying Parties ......................... 26
Limitations on Indemnification Obligations .............................. 28
Indemnification by the BMS Indemnifying Parties ......................... 28
Limitation on Indemnification Obligations ............................... 29
Covenants ............................................................... 29
Deposit of Escrowed Property .............................................. 30
Disposition of Escrowed Property .......................................... 31
Distributions for Indemnified Obligations ............................... 33
Pending Claims .......................................................... 35
Terms of the Tax Matters Agreement ........................................ 36
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Certain Federal Income Tax Consequences ................................... 37
RELATIONSHIP WITH BMS ..................................................... 39
Indemnification Agreement; Escrow Agreement; Tax Matters Agreement ........ 39
Noncompetition Agreements ................................................. 39
AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement;
OnCare Medstation Agreement ............................................. 39
License Agreement ......................................................... 40
Transitional Services Agreement ........................................... 40
TRADING OF AHC COMMON STOCK ............................................... 40
CAPITALIZATION ............................................................ 40
Report of Independent Auditors ............................................ 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ........................................................... 53
MANAGEMENT ................................................................ 55
Summary Compensation Table ................................................ 57
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF AHC ..... 63
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION ............. 66
DESCRIPTION OF AHC CAPITAL STOCK .......................................... 67
Section 203 of the Delaware General Corporation Law ..................... 68
Number of Directors; Removal; Vacancies ................................. 69
Stockholder Action by Unanimous Consent; Special Meetings ............... 69
Amendment of Certain Charter and Bylaw Provisions ....................... 69
Preferred Stock ......................................................... 69
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF COMMON STOCK ................... 71
Certain Business Combinations ............................................. 71
Removal of Directors ...................................................... 71
Vacancies on the Board of Directors ....................................... 71
Amendments to the Certificate of Incorporation ............................ 72
Amendments to Restated Bylaws ............................................. 72
Special Meetings of Stockholders; Action by Written Consent ............... 73
Indemnification of Officers and Directors ................................. 73
No Cumulative Voting ...................................................... 74
Size and Classification of the Board of Directors ......................... 74
INDEX OF DEFINED TERMS .................................................... 75
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SUMMARY
The following summarizes certain information contained elsewhere in this
Information Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information included elsewhere in this
Information Statement, which should be read in its entirety. This Information
Statement is attached as Appendix G to the Proxy Statement/Prospectus of Axion
and BMS relating to the merger of BMS Sub with and into Axion, with Axion as the
surviving entity. See "Summary -- The Transactions" below. Immediately prior to
the Effective Time defined herein, each issued and outstanding share of AHC
Common Stock, par value $.0001 per share ("AHC Common Stock"), will be converted
into a number of shares of AHC Preferred Stock equal to the quotient of (A) the
number of shares of Axion Common Stock outstanding immediately prior to the Time
of Distribution (including any shares of Axion Common Stock issued in connection
with the conversion of Axion Preferred Stock to Axion Common Stock and the
exercise of Axion Options, in each case in connection with the consummation of
the Merger) divided by (B) the number of shares of AHC Common Stock outstanding
immediately prior to the Time of Distribution. See "Description of the Capital
Stock of AHC". Based on the number of shares of Axion Common Stock outstanding
on June 30, 1996 (and assuming the exercise or cancellation of stock options for
3,256,866 shares of Axion Common Stock and conversion of 6,740,890 shares of
Axion Preferred Stock into 6,740,890 shares of Axion Common Stock prior to the
Time of Distribution), it is estimated that approximately 9,977,756 shares of
AHC Preferred Stock will be distributed to Axion stockholders in the
Distribution.
Unless otherwise noted, the financial statements and other financial
information and data herein are presented on a consolidated basis, giving effect
to certain of the transactions contemplated as part of the Merger and the
Distribution. See Note 3 to the Consolidated Financial Statements included
elsewhere herein. Unless otherwise defined herein, capitalized terms used in
this Summary shall have the respective meanings ascribed to them elsewhere in
this Information Statement. An Index of Defined Terms used herein is included at
page __ of this Information Statement.
THE COMPANY
AHC, formed by Axion in 1994, provides cancer-specific managed care
services to cancer care payers and providers. AHC will provide services and
information tools specifically designed to assist in better managing cancer care
from both a clinical quality and cost perspective. AHC is in the early stages of
development and has derived limited revenues to date from such services.
Following the Contributions (as defined herein) and the Merger, AHC's
business will consist of the following:
Clinical Studies. The clinical studies business, which began upon Axion's
incorporation in 1987, coordinates studies of both emerging and existing
oncology drugs and treatments by pharmaceutical and biotechnology companies.
OPUS Matrix Business. The OPUS Matrix Business includes the use of a
point-of-care decision support system that is used for oncology disease
management. The system was specifically designed as a computer tool to
operationalize treatment guidelines, capture specific outcomes information, and
automate the generation of treatment plans and clinical documentation at the
point-of-care. Included as part of the OPUS Matrix business are the management
information systems operations for AHC.
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The mailing address of the AHC's principal executive offices is 1111
Bayhill Drive, Suite 125, San Bruno, California 94066. See "AHC".
The Transactions
AHC is currently a wholly owned subsidiary of Axion. Axion has entered into
the Merger Agreement whereby, upon the terms and subject to the conditions set
forth therein, BMS Sub will be merged with and into Axion with Axion surviving
as a wholly owned subsidiary of BMS. In connection with and in order to
facilitate the Merger, Axion has agreed to effect, pro rata to its stockholders
immediately prior to the effectiveness of the Merger, the Distribution of all of
the outstanding shares of AHC Preferred Stock, which should be tax free to Axion
stockholders for federal income tax purposes except to the extent of cash
payments received for fractional shares.
The Distribution
Distributing Company ................. Axion
Securities to be Distributed.......... All outstanding AHC Preferred Stock,
which equals the quotient of the number
of shares of Axion Common Stock
outstanding immediately prior to the
Time of Distribution (as defined below)
(including any shares of Axion Common
Stock issued in connection with the
conversion of Axion Preferred Stock to
Axion Common Stock and the exercise of
Axion Options, in each case in
connection with the consummation of the
Merger). It is estimated that 9,977,756
shares of AHC Preferred Stock will be
distributed pursuant to the
Distribution. See "The
Distribution--Terms of the Distribution
Agreement--The Distribution".
Time of Distribution.................. The Distribution is expected to be
effective (the "Time of Distribution")
immediately prior to the Merger becomes
effective (the "Effective Time"). Stock
certificates for shares of AHC Preferred
Stock will be mailed as soon as
practicable after the Time of
Distribution. See "The Distribution --
Terms of the Distribution Agreement
--The Distribution".
Distribution Record Date.............. It is expected that the Distribution
Record Date will be established as the
day on which the Time of Distribution
occurs. See "The Distribution--Terms of
the Distribution Agreement".
Trading Market........................ There is no existing trading market for
AHC Preferred Stock. AHC has not sought
and does not intend to apply for listing
of AHC Preferred Stock on a securities
exchange or seek approval for quotation
through an automated quotation system.
There can be no assurance that any
trading market will develop for AHC
Preferred Stock. In addition, the
certificate
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of incorporation of AHC (the "AHC
Certificate of Incorporation") will be
amended and restated to provide for
various restrictions on transfer of AHC
Preferred Stock (as so amended and
restated, the "Restated Certificate").
The certificates evidencing the AHC
Preferred Stock will bear a legend
referring to these restrictions on
transfer. See "Special Factors--Absence
of Trading Market; Restrictions on
Resale".
Conditions to Distribution............ Consummation of the Distribution is
subject to the conditions set forth in
the Distribution Agreement. See "The
Distribution --Terms of the Distribution
Agreement --Conditions to the
Distribution and "The Merger".
Transfer Agent........................ Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
Tax Consequences...................... Ernst & Young LLP ("Ernst & Young"),
certified public accountants to Axion,
have rendered an opinion to the effect
that, based upon certain representations
of BMS, BMS Sub, AHC and Certain
Stockholders of Axion, among other
things, the Distribution should qualify
as a tax-free spinoff pursuant to
Section 355 of the Internal Revenue Code
of 1986, as amended (the "Code"), and,
as a result, holders of Axion Common
Stock should recognize no gain or loss
upon the receipt of AHC Preferred Stock
pursuant to the Distribution.
Consummation of the Distribution and the
Merger is conditioned on a reaffirmation
of that opinion at the Time of
Distribution by Ernst & Young. Such
opinion is based on Ernst & Young's
interpretation as to how various
requirements of Code Section 355 should
apply to the particular facts presented
by the Distribution. With respect to
some of these interpretations, no direct
legal precedents exist. Accordingly,
there can be no assurance that the IRS
will agree with the conclusions set
forth in the Ernst & Young opinion. No
ruling has been sought or will be
received from the Internal Revenue
Service (the "IRS"), and such opinion is
not binding on the IRS. Moreover, no
published rulings or cases squarely
address the qualification under Section
355 of a transaction identical to the
Distribution. If the IRS were to assert
successfully that the Distribution did
not qualify for tax-free treatment, the
receipt of AHC Preferred Stock in the
Distribution would be a taxable
transaction to Axion and the Former
Axion Stockholders for federal income
tax purposes.
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Stockholders are urged to consult their
own tax advisors regarding such tax
consequences. See "Certain Federal
Income Tax Consequences".
If, notwithstanding receipt of such
opinion from Ernst & Young, it is
determined that the Distribution does
not qualify as a tax-free spinoff under
Section 355 of the Code, then BMS may
seek indemnification from AHC and the
Former Axion Stockholders (as defined
herein) pursuant to the terms of the Tax
Matters Agreement (as defined herein)
and the Escrow Agreement (as defined
herein). Such an event could result in
failure by the Former Axion Stockholders
to obtain the release of any of the
Escrowed Shares (as defined herein), and
could result in AHC's failure to obtain
the release of any of the Escrowed Cash
(as defined herein) and could require
AHC to provide additional funds to
indemnify BMS. Failure by AHC to obtain
the release of the Escrowed Cash, or the
requirement of additional payments by
AHC, could have a material adverse
effect on AHC or the value of the AHC
Preferred Stock. See "The
Distribution--Terms of the Escrow
Agreement" and "--Terms of the Tax
Matters Agreement". See also "Special
Factors--Tax Free Nature of
Distribution".
Dividends After the Distribution...... AHC does not anticipate declaring and
paying cash dividends on the AHC
Preferred Stock at any time in the
foreseeable future. The decision whether
to apply legally available funds to the
payment of dividends on the AHC
Preferred Stock will be made by the
Board of Directors of AHC (the "AHC
Board") from time to time in the
exercise of its business judgment,
taking into account, among other things,
AHC's results of operations and
financial condition and any then
existing or proposed commitments for the
use by AHC of available funds. See
"Special Factors--Dividends and Dividend
Policy".
Restrictions on Dividends
and Redemptions ...................... The Indemnification Agreement (as
defined herein) provides for
restrictions on AHC to declare dividends
for a period of 6 years from the
Effective Time. The Indemnification
Agreement also prohibits AHC from making
redemptions of its capital stock for a
period of 6 years from the Effective
Time. See "The Distribution--Terms of
the Distribution Agreement--The
Indemnification Agreement".
Certain Provisions of
the Company's Certificate
of Incorporation and
Restated Bylaws....................... Certain provisions of AHC's Certificate
of Incorporation, as it is anticipated
to be amended and restated prior to the
Distribution substantially as set
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forth in the form of the Restated
Certificate attached to this Information
Statement as Appendix I (the "Restated
Certificate") and the Restated Bylaws of
AHC as they are anticipated to be
amended and restated prior to the
Distribution attached to this
Information Statement as Appendix II (as
so amended and restated, the "Restated
Bylaws"), may be deemed to have the
effect of making difficult an
acquisition of control of AHC in a
transaction not approved by the AHC
Board. See "Special Factors
--Substantial Stockholders; Certain
Provisions of the Certificate of
Incorporation" and "Description of AHC
Capital Stock--Description of Certain
Statutory, Certificate of Incorporation
and Bylaw Provisions".
Merger Agreement...................... If the Merger Agreement is approved and
adopted by the Axion stockholders and
the other conditions to the Merger are
satisfied or waived, at the Effective
Time BMS Sub will be merged with and
into Axion (which will then hold only
the Retained Business) with Axion as the
Surviving Corporation, and the separate
existence of BMS Sub will cease.
Pursuant to the Merger Agreement, at the
time of effectiveness of the Merger (the
"Effective Time") each share of Axion
Common Stock outstanding immediately
prior to the Effective Time (other than
any shares of Axion Common Stock owned
by Axion or any subsidiary of Axion or
BMS or any subsidiary of BMS and any
shares of Axion Common Stock (the
"Dissenting Shares") with respect to
which appraisal rights have been
perfected in accordance with Section 262
of Delaware General Corporation Law (the
"DGCL")) will be converted into the
right to receive Conversion Number (as
defined herein) of fully paid and
nonassessable shares of common stock,
par value $.10 per share, of BMS
together with the associated rights (the
"BMS Rights") pursuant to the Rights
Agreement dated as of December 4, 1987
(as amended, the "Rights Agreement")
between BMS and The Chase Manhattan
Bank, as Rights Agent (collectively,
"BMS Common Stock") equal to the
quotient of (a)(i) $86,000,000 divided
by (ii) the Average Value of BMS Common
Stock (as defined herein) divided by (b)
the number of shares of Axion Common
Stock outstanding immediately prior to
the Effective Time (calculated on a
fully diluted basis assuming that each
share of Axion Preferred Stock
outstanding immediately prior to the
Effective Time has been converted in
accordance with its terms into one share
of Axion Common Stock and that all
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options, warrants or other rights to
acquire Axion Common Stock ("Axion
Options") outstanding immediately prior
to the Effective Time have been
exercised or canceled and the related
subject shares (other than with respect
to canceled Axion Options) of Axion
Common Stock are outstanding
(collectively, the "Diluted Share
Assumption")). In the event that as of
the closing date of the Merger (the
"Closing Date") the Average Value of BMS
Common Stock is less than the Minimum
Price, then the Average Value of BMS
Common Stock will be deemed to be an
amount equal to the Minimum Price, and
in the event that as of the Closing Date
the Average Value of BMS Common Stock is
greater than the Maximum Price (as
defined herein), then the Average Value
of BMS Common Stock will be deemed to be
an amount equal to the Maximum Price, in
each case subject to certain adjustments
for dividends.
Based on the Diluted Share Assumption
(and assuming exercise of all Axion
Options other than the Goldberg $10.00
Options (as defined herein), resulting
in an aggregate of 9,977,756 shares of
Axion Common Stock outstanding), and
assuming an Average Value of BMS Common
Stock equal to $87.08 (the average per
share closing price of BMS Common Stock
for the 10 full New York Stock Exchange
(the "NYSE") trading days ending on the
first full NYSE trading day immediately
preceding the date hereof), the
Conversion Number would be 0.099 and the
aggregate market value of BMS Common
Stock to be received by holders of Axion
Common Stock in the Merger would be
approximately $86 million, or $8.62 per
share of Axion Common Stock. However,
the Average Value of BMS Common Stock is
determined as of five full NYSE trading
days immediately preceding the Effective
Time and the market value of BMS Common
Stock may then be less than the Minimum
Price (or greater than the Maximum
Price) and the number of issued and
outstanding shares of Axion Common Stock
is determined as of immediately prior to
the Effective Time. (See "The Merger".)
Pursuant to the Distribution Agreement,
prior to the Distribution AHC and Axion
will effect certain intercompany
transfers of assets. See "The
Distribution --Terms of the
Distribution".
6
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The foregoing is a brief summary of
certain terms of the Merger affecting
AHC. A complete description of the
Merger and the Merger Agreement may be
found in the Proxy Statement/Prospectus
to which this Information Statement is
attached as Appendix G. The Distribution
Agreement between AHC, Axion, OTNC,
OPUS, OPUS Sub and OTN is more fully
described herein under "The
Distribution".
Relationship with BMS After the
Distribution.......................... Following the Merger, AHC and its
subsidiaries will continue to have
certain relationships with BMS. Pursuant
to the Indemnification Agreement and Tax
Matters Agreement, AHC, certain of its
subsidiaries, OPUS Sub and each
stockholder of Axion immediately prior
to the Effective Time (each, a "Former
Axion Stockholder") will indemnify BMS
and its subsidiaries (including the
Surviving Corporation) against certain
Indemnifiable Losses (as defined herein)
arising primarily from their respective
businesses, including certain tax
liabilities. Pursuant to the Escrow
Agreement, AHC will deposit the Escrowed
Fund, valued at $5,000,000, and the
Former Axion Stockholders will deposit
the Escrowed Shares, amounting to
$5,000,000, in an escrow account to
secure the indemnity obligations of AHC,
OPUS Sub, each other subsidiary of AHC,
OnCare, and the Former Axion
Stockholders under the Indemnification
Agreement and the Tax Matters Agreement.
AHC and the Surviving Corporation will
enter into the License Agreement (as
defined herein) pursuant to which AHC
will grant an exclusive royalty-free
license to the Surviving Corporation to
use the "OPUS" name in connection with
the OPUS Station Business for a period
of one year in the U.S. AHC and the
Surviving Corporation will also enter
into the Transitional Services Agreement
(as defined herein) pursuant to which
AHC and the Surviving Corporation will
provide certain services to each other
following the Merger.
In addition, AHC has also agreed,
pursuant to the Noncompetition Agreement
(as defined herein) for a period of two
years after the Effective Time, not to
engage in, or compete with BMS with
respect to, the distribution of oncology
drugs, supplies or biologics to the
Office based oncologists (as defined
herein) or automated drug dispensing
business anywhere in the United States.
AHC will enter into the AHC Supply
Agreement (as defined herein) and OnCare
will enter into the OnCare Supply
Agreement (as defined herein) which will
provide that AHC and OnCare will
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use the Partnership as their exclusive
provider of oncology pharmaceutical
products. AHC will enter into the AHC
Medstation Agreement (as defined herein)
and OnCare will enter into the OnCare
Medstation Agreement (as defined herein)
which will provide that AHC and OnCare
will use the Partnership as their
exclusive provider of oncology drug
dispensing machines. In addition, AHC
has also agreed, pursuant to the
Noncompetition Agreement (as defined
herein) for a period of two years after
the Effective Time not to engage in, or
compete with BMS with respect to, the
distribution of oncology drugs, supplies
or biologics to the Customer Group (as
defined herein). See "The
Distribution--The Indemnification
Agreement", "--Tax Matters Agreement";
"--The Escrow Agreement", "Relationship
with BMS--License Agreement",
"--Transitional Services Agreement",
"The Noncompetition Agreements" and
"--AHC Supply Agreement; OnCare Supply
Agreement; AHC Medstation Agreement;
OnCare Medstation Agreement" (as defined
herein) and OnCare will enter into the
OnCare Medstation (as defined herein)
which will provide that AHC and OnCare
will use the Partnership as their
exclusive provider of oncology drug
dispensing machines. In addition, AHC
has also agreed, pursuant to the
Noncompetition Agreement (as defined
herein) for a period of two years after
the Effective Time not to engage in, or
compete with BMS with respect to, the
distribution of oncology drugs, supplies
or biologics to the office-based
oncologists. See "The Distribution--The
Indemnification Agreement", "--Tax
Matters Agreement", "--The Escrow
Agreement", "Relationship with
BMS--License Agreement", "--Transitional
Services Agreement", "The Noncompetition
Agreements" and "--AHC Supply Agreement,
OnCare Supply Agreement, AHC Medstation
Agreement, OnCare Medstation Agreement".
Special Factors....................... Stockholders should carefully consider
the matters discussed under the section
entitled "Special Factors" in this
Information Statement.
8
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SPECIAL FACTORS
Business To Be Conducted By AHC; Limited Operating History; History of Losses;
Immediately prior to the Time of Distribution, the Acquired Business will
be transferred to, and will comprise all of the business, assets and liabilities
of AHC. The business, assets and liabilities of AHC will not include the
Retained Business, which accounted for approximately $195 million, or 98%, of
Axion's consolidated revenues. As a result, AHC will be substantially smaller
than Axion and will derive its revenues from a less diverse group of businesses
and assets. There can be no assurance that AHC will be successful in
implementing its business strategies or that, if implemented, such strategies
will result in the growth of AHC's businesses.
Axion formed AHC in 1994 and at such time contributed Axion's clinical
studies business, which began in 1987, to AHC. AHC's business today is a
collection of related cancer-focused healthcare activities designed to promote
provision of the highest quality, cost-effective cancer care by office-based
oncologists (the "AHC Business"). AHC's prospects must be evaluated in light of
the risks, expenses and difficulties frequently encountered by recently formed
businesses.
AHC has not realized significant revenues to date and has operated and
expects to continue to operate at a loss for the foreseeable future. To date,
AHC has been dependent upon Axion to finance its development activities. It is
expected that AHC will continue to operate at a loss for the foreseeable future.
There can be no assurance that AHC will be able to achieve profitability on a
quarterly or annual basis in the future. In such event, or in the event that
adverse conditions prevail or are perceived to prevail generally or with respect
to AHC's business, the value of AHC Preferred Stock would likely be materially
adversely affected. See "--Limited Financial Resources", "--Risks Associated
with New Business Strategy", "Selected Consolidated Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operation".
Risks Associated with New Business Strategy
The cancer-specific managed care business in which AHC will compete is
characterized by rapid technological change, frequent introduction of new
products and services, changes in customer demands and evolving industry
standards. The introduction of products and services embodying new technologies
and the emergence of new industry standards can render existing market
strategies obsolete and unmarketable. AHC's future success will depend on its
ability to address the increasingly sophisticated needs of its customers as it
develops new business strategies to address the cancer-specific managed care
market. There can be no assurance that AHC will be successful in developing and
marketing its products and services, that AHC will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of such products and services, or that AHC's new products and services
and product and service enhancements will adequately meet the requirements of
the marketplace and achieve market acceptance. If AHC is unable to develop and
introduce new products and services or enhancements of existing products and
services in a timely manner in response to changing market conditions or
customer requirements, AHC's business, operating results and financial condition
will be materially adversely affected. See "AHC".
Indemnification Obligation of Former Axion Stockholders, AHC and the 81% AHC
Subsidiaries
AHC, the 81% AHC Subsidiaries (including OPUS Sub) and each Former Axion
Stockholder will become a party to the Indemnification Agreement, the Tax
Matters Agreement and the Escrow Agreement. Pursuant to these agreements, AHC,
the 81% AHC Subsidiaries and the Former Axion Stockholders will agree to
indemnify the BMS Indemnified Parties (including BMS, the Surviving Corporation,
OPUS, OTNC and the Partnership) against certain liabilities, including
liabilities relating to or arising from any breach of any representation,
warranty or covenant of Axion or any of its subsidiaries in any Document; any
material mis-
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statements or omissions contained in this Proxy Statement/Prospectus or the
Information Statement with respect to information related to Axion and its
Subsidiaries; the Acquired Assets, the Assumed Liabilities and the Acquired
Business and the business of AHC and OPUS Sub (other than Retained Liabilities);
the business of Axion and its Subsidiaries prior to the Merger (other than
Retained Liabilities); claims of stockholders and certain other persons to the
extent relating to or arising from the execution by Axion or any of its
Subsidiaries of any of the Documents or the consummation of the transactions
contemplated thereby (including claims for indemnification by any officer or
director of Axion or any of its Subsidiaries); the Excess Axion Expenses;
certain liabilities related to the existing contractual arrangements between
BMS, on the one hand, and OTNC and the Partnership, on the other hand; certain
pre-closing tax liabilities of Axion and its Subsidiaries; and any tax
liabilities that would arise if, contrary to expectations, the Contributions
fail to be tax-free or the Distribution fails to qualify as a tax-free spinoff.
To secure these indemnification obligations, immediately following the
Effective Time, the Escrowed Shares, valued at $5,000,000, will be placed in
escrow and AHC will place the Escrowed Cash of $5,000,000 in escrow. In
addition, AHC and the 81% AHC Subsidiaries each have agreed for a period of six
years following the Closing Date (subject to extension in certain circumstances)
to certain prohibitions on liquidation, payment of dividends or other
distributions (including by redemption or repurchase) with respect to any of its
capital stock and transactions with affiliates (including OnCare) on a non-arms'
length basis and to certain restrictions related to mergers or sales of all or
substantially all their assets. These prohibitions and restrictions were
designed to prevent AHC from engaging in transactions that might have the effect
of limiting the availability of AHC's assets to satisfy its indemnification
obligations to the BMS Indemnified Parties.
Certain of the AHC Indemnifying Parties' indemnification obligations are
subject to agreed limitations. Indemnification liabilities for losses arising
from or related to any breach of any representation, warranty or covenant by
Axion or any of its Subsidiaries in any Document or any losses directly related
to OTN or the OPUS Station Business are subject to a $500,000 threshold and a
$12,000,000 cap. Indemnification liabilities for losses relating to or arising
out of breaches of any representation, warranty or covenant that is directly
related to OTN are limited to 50% of the amount of such losses. All other
indemnification obligations are unlimited in amount. Indemnification obligations
for losses related to or arising from any breach of representation or warranty
of Axion or any of its Subsidiaries in any of the Documents terminate on March
31, 1998 (or in certain limited circumstances, on the third anniversary of the
Closing Date). All other indemnification obligations survive in perpetuity. In
addition, the indemnification obligations of each Former Axion Stockholder will
be limited in amount to such Former Axion Stockholders pro rata share of the
Escrowed Shares, except in certain circumstances involving fraud, intentional
misrepresentation or intentional breach of a covenant by any such Former Axion
Stockholder, and will terminate one year after the Closing Date, subject to a
holdback of Escrowed Shares for any then pending claims. To the extent not
previously paid to BMS in respect of an indemnification loss, up to $4,000,000
of the Escrowed Cash may be released to AHC on the second anniversary of the
Closing Date and the balance of such Escrowed Cash may be released to AHC on the
sixth anniversary of the Closing Date, in each case subject to a holdback for
any then pending claims. AHC and the 81% AHC Subsidiaries' indemnification
obligations are not limited to the Escrowed Cash. THERE CAN BE NO ASSURANCE AS
TO WHETHER ALL OR ANY PORTION OF SUCH ESCROWED CASH WILL EVENTUALLY BE RELEASED
TO AHC OR THAT THE INDEMNIFICATION OBLIGATIONS OF AHC AND THE 81% AHC
SUBSIDIARIES WILL NOT EXCEED THE AMOUNT OF THE ESCROWED CASH. Failure to obtain
the release of such Escrowed Cash or the incurrence of indemnification
obligations in excess of the Escrowed Cash (which AHC and the 81% AHC
Subsidiaries may not have the resources to pay) could have a material adverse
effect on AHC's business, financial condition or results of operations and,
accordingly, the value of the AHC Preferred Stock. THERE ALSO CAN BE NO
ASSURANCE THAT AHC AND THE 81% AHC SUBSIDIARIES WILL HAVE SUFFICIENT RESOURCES
OR LIQUIDITY TO MEET THEIR INDEMNIFICATION OBLIGATIONS AND, ACCORDINGLY, THERE
CAN BE NO ASSURANCES THAT THE VALUE OF THE AHC PREFERRED STOCK WILL NOT BE
MATERIALLY ADVERSELY AFFECTED.
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In connection with the tax opinions rendered pursuant to the Merger and the
Distribution, certain of the Former Axion Stockholders have or will sign letters
representing that they have no plan or intention to sell or otherwise dispose of
any of their holdings of (i) Axion capital stock prior to the Merger, (ii) the
AHC Preferred Stock received in the Distribution or (iii) the BMS Common Stock
received in the Merger (the "Continuity of Interest Letters"). In the event that
a Former Axion Stockholder knowingly made a misrepresentation in the Continuity
of Interest Letter that resulted in the Merger failing to qualify as a tax-free
reorganization under Code Section 368 or the Distribution failing to qualify as
a tax-free spin-off under Code Section 355, such stockholder would be
individually liable for all tax liability resulting therefrom. See "Certain
Federal Income Tax Consequences."
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of
the Tax Matters Agreement" and "--Terms of the Escrow Agreement" and
Relationship with BMS--Indemnification Agreement; Escrow Agreement; Tax Matters
Agreement".
Limited Financial Resources
AHC has expended and will continue to expend substantial funds in the
development of its cancer-specific managed care service business. AHC may seek
additional funding for these purposes through a combination of new collaborative
arrangements, strategic alliances, additional equity or debt financings or from
other sources. There can be no assurance that such additional funds will be
available on acceptable terms, if at all. Even if available, the cost of funds
may result in substantial dilution to current stockholders. If adequate funds
are not available from operations or additional sources of financings, AHC's
business, operating results and financial condition could be materially and
adversely affected. See "--Restrictions on AHC Dividends and Redemptions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Relationship with BMS
AHC and the Surviving Corporation will enter into the Transitional Services
Agreement pursuant to which AHC and the Surviving Corporation will provide
certain services to each other. Following the Merger, AHC will enter into the
AHC Supply Agreement and OnCare will enter into the OnCare Supply Agreement
which will provide that AHC and OnCare will use the Partnership as their
exclusive provider of oncology pharmaceutical products. AHC will enter into the
AHC Medstation Agreement and OnCare will enter into the OnCare Medstation
Agreement which will provide that AHC and OnCare will use the Partnership as
their exclusive provider of oncology drug dispensing machines. In addition, AHC
has also agreed, pursuant to the Noncompetition Agreement for a period of two
years after the Effective Time, not to engage in, or compete with BMS with
respect to, the distribution of oncology drugs, supplies or biologics to the
Customer Group or automated drug dispensing business anywhere in the United
States. There can be no assurance that the restrictions imposed on AHC by the
agreements described above will not have a material adverse effect on AHC's
business, financial condition and results of operation. See "Relationship with
BMS--License Agreement", "--Transitional Services Agreement", "--The
Noncompetition Agreements" and "--AHC Supply Agreement; OnCare Supply Agreement;
AHC Medstation Agreement; OnCare Medstation Agreement".
Reliance on Transitional Services Agreement
The Transitional Services Agreement provides that AHC will agree to provide
to Axion certain services, including financial and information systems services
and that Axion will agree to provide to AHC certain services, including certain
information systems services and clinical trial logistics support. The services
provided under the Transitional Services Agreement will be performed for a
period of three months from the Effective Time with renewals of one month upon
the mutual consent of the parties with such renewals not to exceed an aggregate
of three months in addition to the original term. There can be no assurance that
the termination of the services provided by Axion pursuant to the Transitional
Services Agreement will not have a material adverse effect on
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AHC's business, financial condition and results of operation. See "Relationship
with BMS--The Transitional Services Agreement.
Repayment of Loans to Current Holders of Axion Options
Pursuant to the Merger Agreement all Axion Options will be exercised (other
than the Goldberg $10.00 Options, which will not be exercised and will be
canceled). Axion will make loans totaling approximately $6,500,000 to
approximately 97 holders of Axion Options, who must use the proceeds to exercise
such Axion Options. Following the Merger, the obligations of the holders of
Axion Options who received such loans will become obligations to AHC instead of
Axion. There can be no assurance that holders of Axion Options who received such
loans will repay any or all of their obligations to AHC following the Merger.
Failure to receive repayment of such loans could have a material adverse effect
on AHC's business, financial condition and results of operation.
Competition
The market in which AHC will operate is intensely competitive. AHC will
have a number of current and potential competitors, including pharmaceutical and
biotechnology companies, insurance companies and information service companies,
a significant number of which have substantially greater financial and human
resources capabilities than AHC. AHC expects additional competition from other
established and emerging companies, particularly if the national trend towards
managed care continues and the office-based oncology drug market continues to
develop and expand. Increased competition could result in price reductions,
reduced margins and loss of market share, any of which could materially and
adversely affect AHC. There can be no assurance that AHC will be able to compete
successfully against current or future competitors or that competitive pressures
faced by will not materially and adversely affect AHC's business, financial
condition and results of operations.
Dependence Upon Key Personnel
AHC's future success depends in significant part upon the continued service
of its key senior management personnel, none of whom is bound by an employment
agreement. AHC's future success also depends on its continuing ability to
attract and retain highly qualified personnel. Competition for such personnel is
intense, and there can be no assurance that AHC can retain its key employees or
that it can attract, assimilate or retain other highly qualified personnel in
the future. Failure to attract and retain such personnel could have a material
adverse effect upon AHC's business, financial condition and results of
operations. Additions of new personnel and departures of existing personnel,
particularly in key positions, can result in staffing adjustments and departures
of existing personnel, which could have a material adverse effect upon AHC's
business, financial condition and results of operations. Certain AHC officers
also hold management positions in OnCare. There can be no assurance that the
responsibilities of such persons in their capacity as officers of OnCare will
not result in a conflict of interest with their duties as AHC officers. See
"Management--Officers and Directors". See "AHC--Employees" and "--Future Conduct
of the Business".
Management Information Systems
AHC has an ongoing working relationship with Electronic Data Systems
Corporation ("EDS"), which implemented and currently manages AHC's existing
information systems. In the event that AHC or EDS is unable to effectively
manage existing information systems, AHC's business, financial condition and
results of operations would be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
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Dependence on Third-Party Service Providers
AHC is dependent upon third parties for clinically-derived treatment data
and information on developing drugs and drug therapies. Many of the drug
manufacturers, insurance companies, research centers and oncology practices that
supply information to AHC are current or potential competitors of AHC. There can
be no assurance that these third party service providers will not cease to
provide information to AHC, increase the prices they charge AHC, or enter into
direct competition with AHC. AHC has no continuing contractual arrangement with
many of the third parties that supply it with information. To date AHC has been
able to obtain adequate information. There can be no assurance that AHC will be
able to obtain adequate information in the future. In the event that AHC's
third-party service providers were unwilling to continue providing such services
to AHC, AHC's business, financial condition and results of operations would be
materially and adversely affected.
Tax Free Nature of Distribution
Ernst & Young LLP ("Ernst & Young") has rendered an opinion to the effect
that based upon the representations of BMS, BMS Sub, Axion and AHC, among other
things, the Distribution should qualify as a tax-free spinoff pursuant to
Section 355 of the Code. Consummation of the Distribution is conditioned on a
reaffirmation of that opinion at the Time of Distribution by Ernst & Young. No
ruling has been sought or will be received from the IRS and such opinions are
not binding on the IRS. There is no assurance that the IRS will not assert
successfully that the Distribution would be a taxable transaction for federal
income tax purposes and for other tax purposes as well.
Stockholders are urged to consult their own tax advisors regarding such tax
consequences.
If, notwithstanding receipt of such opinions from Ernst & Young, it is
determined that the Distribution does not qualify as a tax-free spinoff under
Section 355 of the Code, then BMS may seek indemnification from AHC and the
Former Axion Stockholders pursuant to certain tax matters, escrow and
indemnification agreements following the Effective Time of the Merger, and BMS's
potential recovery would not be limited to the amount of the Escrowed Cash and
the Escrowed Shares. Such an event could result in failure by the Former Axion
Stockholders to obtain the release of any Escrowed Cash. AHC would also be
jointly and severally liable for losses in excess of such amounts. Failure by
AHC to obtain the release of the Escrowed Cash, or imposition of additional
liabilities on AHC, could have a material adverse effect on AHC's business,
operating results and financial condition and or the value of AHC Preferred
Stock. See "The Distribution--Terms of the Escrow Agreement", "--Terms of the
Tax Matters Agreement" and "--Certain Federal Tax Consequences".
Dividends and Dividend Policy
AHC does not anticipate declaring and paying cash dividends on the AHC
Preferred Stock at any time in the foreseeable future. The decision whether to
apply legally available funds to the payment of dividends on the AHC Preferred
Stock will be made by AHC Board from time to time in the exercise of its
business judgment, taking into account, among other things, the AHC's results of
operations and financial condition and any then existing or proposed commitments
for the use of AHC's available funds. The Indemnification Agreement provides,
however, that for a period of 6 years following the Effective Date, AHC may not
declare any dividends on AHC's capital stock. See "The Distribution--The Terms
of the Indemnification Agreement".
In addition, AHC may in the future issue debt securities, preferred stock
or enter into loan or other agreements that restrict the payment of dividends on
and repurchases of AHC's capital stock. See "--Business to Be Conducted by AHC;
Limited Operating History; History of Losses; Potential Fluctuations in
Quarterly Results".
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Absence of Trading Market; Restrictions on Resale
There is no existing trading market for AHC Preferred Stock. AHC has not
sought and does not intend to apply for listing of AHC Preferred Stock on a
securities exchange or seek approval for quotation through an automated
quotation system. There can be no assurance that any trading market will develop
for AHC Preferred Stock. In addition, the Restated Certificate will provide for
various restrictions on transfer of AHC Preferred Stock. The certificates
evidencing the AHC Preferred Stock will bear a legend referring to these
restrictions on transfer.
Future Acquisitions; Dilution
AHC may in the future pursue acquisitions of complementary businesses.
Future acquisitions by AHC may result in dilutive issuances of equity securities
and the incurrence of additional debt and amortization expenses related to
goodwill and intangible assets, any of which could materially adversely affect
AHC's business, financial condition and results of operations. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations of the acquired company, the diversion of management's
attention from other business concerns, risks of entering markets in which AHC
has limited or no prior direct experience and the potential loss of key
employees of the acquired company. There are currently no negotiations,
commitment or agreements with respect to any acquisition.
Reimbursement-Related Risks
AHC's business depends in part upon the extent to which reimbursement for
the costs of chemotherapy drug treatment is and will be available to cancer
patients and health care providers from government health administration
authorities, private health insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of health care products and
there can be no assurance that adequate third-party coverage will be available
in the future. Government and other third-party payers are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for certain therapeutic products and by refusing, in some
cases, to provide any coverage for uses of products and regiments approved by
the Food and Drug Administration (the "FDA") for disease indications for which
the FDA has not granted marketing approval, so-called "off-label" use of
pharmaceutical products. AHC believes that off-label prescriptions represent a
significant portion of the market for cancer pharmaceuticals. Failure by doctors
and other health care providers to obtain reimbursement from third-party payers
or changes in government and private third-party payers' policies towards
reimbursement for procedures suggested by AHC would have a material adverse
effect on AHC's business, financial condition and results of operations. See
"The Company".
Risks Associated with Uncertain Health Care Environment
The health care industry in the United States continues to undergo
fundamental change. There currently are a number of proposals for reform of the
health care system, including changes to Medicare and Medicaid reimbursement.
Due to uncertainties regarding the ultimate features of reform initiatives and
their enactment and implementation, AHC cannot predict which, if any, of such
proposals will be adopted, when they may be adopted or what impact they may have
on AHC. The actual announcement of reform proposals and the investment
community's reaction to such proposals, announcements by competitors and payers
of their strategies to respond to reform initiatives and general industry
conditions are likely to produce volatility in the trading and market price of
AHC Preferred Stock.
Government Regulation
AHC's marketing activities are regulated under federal and state laws.
These laws and regulations are broad in scope and are subject to frequent
modification and reinterpretation. Any application of such laws and regulations
by a governmental authority to AHC's marketing practices so as to require
alteration of those practices
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could have an adverse effect on AHC's business, operating results and financial
condition. There can be no assurance that AHC's marketing activities will be
determined to be in compliance with applicable laws and regulations.
Noncompliance with such laws and regulations could materially adversely affect
AHC's business, financial condition and results of operations.
Substantial Stockholders; Certain Provisions of the Certificate of Incorporation
Immediately following the Distribution, directors and executive officers of
AHC (including any shares of Axion Common Stock issued in connection with the
conversion of Axion Preferred Stock to Axion Common Stock and the exercise of
Axion Options, in each case in connection with the consummation of the Merger)
will beneficially own shares of AHC Preferred Stock representing over 57.2% of
the voting power of AHC's then outstanding voting securities.
Certain provisions of the Restated Certificate and the Restated Bylaws may
be deemed to have the effect of making difficult an acquisition of control of
AHC in a transaction not approved by the AHC Board. These provisions include the
ability of the AHC Board to issue shares of preferred stock in one or more
series without further authorization of the AHC stockholders and certain other
provisions described under "Description of AHC Capital Stock". Many of these
provisions are also present in Axion's certificate of incorporation and bylaws
as currently in effect, and generally are designed to permit AHC to develop its
businesses and foster its long-term growth without the disruption caused by the
threat of a takeover not deemed by the AHC Board to be in the best interests of
AHC and its stockholders. These provisions may also have the effect of
discouraging a third party from making a tender offer or otherwise attempting to
obtain control of AHC even though such a transaction might be economically
beneficial to AHC and its stockholders. See "Description of AHC Capital Stock
- -Description of Certain Statutory, Certificate of Incorporation and Bylaw
Provisions".
OnCare Series A Redeemable Preferred Stock
After the Distribution, AHC will hold 2,700,000 shares of OnCare Preferred
Stock, which is nonvoting, nonconvertible and mandatorily redeemable, at a
redemption price of $5.00 per share, at the earliest of December 31, 1996, an
underwritten public offering of OnCare common stock, a merger or consolidation
of OnCare with or into another corporation, or the sale of all or substantially
all of OnCare's assets to another person or entity. There can be no assurance
that OnCare will be able to redeem all or a portion of the 2,700,000 shares held
by AHC. If OnCare is unable to redeem the shares held by AHC, AHC's business,
financial condition and results of operations would be adversely affected.
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THE COMPANY
General
AHC was organized in Delaware in 1994 as OnCare Health Inc. and, pursuant
to an exemption from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), issued 1,000 shares of common stock,
par value $.0001 per share, to Axion on December 1, 1994, for par value. In
1995, AHC changed its name to Axion HealthCare Inc. AHC is currently a direct
wholly owned subsidiary of Axion.
AHC provides cancer-specific managed care services to cancer care payers
and providers. AHC will provide services and information tools specifically
designed to assist in better managing cancer care from both a clinical quality
and cost standpoint. AHC is in the early stages of development and has derived
limited revenues to date from such services.
The mailing address of AHC's principal executive offices is 1111 Bayhill
Drive, Suite 125, San Bruno, California 94066.
Set forth below is a description of the Acquired Business that will be
transferred to AHC immediately prior to the Time of Distribution.
Industry
AHC is well positioned to capitalize on a wide spectrum of opportunities in
the management of cancer care. Cancer costs are growing at an annual rate of
over 10%. In 1990, $35 billion was spent directly on cancer care. These costs
exceeded $50 billion in 1995. The traditional approach to managing disease has
been to focus mainly on episodes of care. Payers have attempted to minimize
expenses through individual cost components such as hospitalization,
professional services, home care, pharmaceuticals and laboratories. This
approach has been generally unsuccessful due to cost shifting by providers. AHC
has created and is continuing to develop a set of multidimensional tools for the
management of cancer. This approach relies on scientifically and clinically
derived consensus treatment guidelines as well as automated decision support
systems and software in development that permit the capture and analysis of
outcomes data, both within a particular oncology practice and aggregated from
multiple oncology practices.
The AHC Business
AHC engages in clinical/disease management of cancer, consisting of a
collection of related cancer-focused healthcare activities designed to promote
provision of the highest quality cost-effective cancer care by office-based
oncologists. This business began upon Axion's incorporation in 1987 and was
transferred to AHC upon formation. This activity, which continues to the
present, consists of coordinating clinical studies of both emerging and existing
cancer drugs and treatments developed by pharmaceutical and biotechnology
companies. Depending on the particular item, AHC can help develop the parameters
of a study, negotiate contracts, act as project manager, provide logistical
support (such as ordering, receiving, tracking and disbursing drug shipments,
and tracking patient sign-ups and responses), receive and disburse payments,
collect and analyze the data, and prepare a report of the results. AHC derives
all of its revenues from contracts with drug companies.
The information and relationships developed in the clinical studies
activity have resulted in the provision of other services, largely to
office-based oncologists, including reimbursement assistance, assistance in the
preparation of FDA applications, and development of practice management and
decision support software tools through OPUS Sub. Moreover, AHC's knowledge and
experience have enabled it to develop cancer drug protocols and treatment
guidelines that are designed to serve as integral parts of its disease
management program. In this activity, which began in 1994, AHC negotiates with
payers and providers to manage the delivery of cancer care in
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those markets where OnCare does not have operations. Where OnCare does have
operations, AHC contracts exclusively on behalf of OnCare using OnCare's network
of physicians through which cancer care is provided using the protocols and
guidelines described above, and the computer resources described below, all with
a view to providing the highest quality, cost-effective cancer treatment.
OPUS Matrix Business
The OPUS Matrix Business includes the use of a point-of-care decision
support system that is used for oncology disease management. The system was
specifically designed as a computer tool to operationalize treatment guidelines,
capture specific outcomes information, and automate the generation of treatment
plans and clinical documentation at the point-of-care. The system includes drug
information (licensed from First DataBank) which allows users to look up
specific information about the drugs that are ordered, as well as providing the
information base for the system's automatic checking of drug interactions and
allergies. OPUS Matrix is connected to a central data warehouse from which AHC
accesses data for disease management activities.
AHC's Strategy
AHC's strategy consists of the rational organization of the means to
deliver care, including medical oncologists, radiation oncologists, surgical
oncologists, hospitals, home care, laboratory services and hospice care. By
accepting financial risk for the total population of cancer patients, AHC
believes that it is possible to remove the economic incentive for individual
providers to increase reimbursement by inappropriately overemphasizing any one
aspect of care. Through this integrated approach, AHC believes that it may be
able to effect significant savings to payers and at the same time assure
providers of adequate payment for delivered services. AHC's strategy encompasses
takes a region-by-region, or market-by-market, approach in partnerships with
payers and providers. In those markets where OnCare has operations, AHC
contracts exclusively on behalf of OnCare.
AHC believes that payers, HMOs, self-insured employers and IPAs can derive
the following benefits from contracting with AHC for the total care of cancer
patients:
o the delivery of consistent quality care to their patients through the
application of a wide spectrum of disease management tools;
o a standard, quality driven, cost effective approach to cancer care
which systematically eliminates unnecessary costs; and
o predictable costs
AHC's strategy is to share risk with payers and providers, purchase ancillary
services on a contract basis and in general to realign economic incentives to
ensure rational utilization of medical and financial resources. In a market
expected to reach $90 billion by the year 2000, AHC anticipates that it will
create a sustainable competitive advantage built on superior outcomes.
Future Conduct of the Business
In addition to the assets and investments described above, following the
Distribution AHC intends to continue to consider acquisitions, strategic
alliances, joint ventures and investments in an effort to increase stockholder
value. The management of AHC following the Distribution is expected to be
substantially the same as the management of AHC prior to the Distribution. AHC's
goal is to create a competitive advantage in the total care of cancer patients
built on superior outcomes, although there can be no assurance that AHC will
achieve this goal.
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Employees
It is anticipated that immediately following the Distribution, AHC will
employ approximately 25 persons. Certain AHC officers also hold management
positions in OnCare. See "Special Factors--Dependence on Key Personnel".
Properties
AHC subleases its principal executive office in San Bruno, California,
which is currently leased by OnCare. AHC's management believes that all the
properties to be owned or leased by AHC following the Distribution will be
adequate for AHC's business needs and will be in good operating condition.
Trademarks
Oncology Therapeutics Network, Axion and the Axion logo are registered
trademarks of Axion. Axion HealthCare, Oncare Practice Utilization System, OPUS,
OPUS Health Systems and OPUS Matrix are registered trademarks of Axion. All
other trademarks or trade names referred to in this Proxy Statement/Prospectus
are the property of their respective owners.
THE MERGER
This section of the Information Statement describes certain aspects of the
proposed Merger. To the extent that it relates to the Merger Agreement, the
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to the Proxy Statement/Prospectus to which this Information Statement is
attached as Appendix G and is incorporated herein by reference. As used in this
Information Statement, the "Retained Company" or the "Retained Companies", as
the case may be, means Axion, together with its subsidiaries, OTNC and the
Partnership, which collectively will own and conduct the Retained Business at
the Effective Time. All Axion stockholders are urged to read the Merger
Agreement in its entirety.
If the Merger Agreement is approved and adopted by the Axion stockholders
and the other conditions to the Merger are satisfied or waived, at the Effective
Time BMS Sub will be merged with and into Axion (which will then hold only the
Retained Business) with Axion as the Surviving Corporation, and the separate
existence of BMS Sub will cease.
Terms of the Merger Agreement
Pursuant to the Merger Agreement, at the Effective Time each issued and
outstanding share of Axion Common Stock (other than any shares of Axion Common
Stock owned by Axion or any subsidiary of Axion or BMS or any wholly owned
subsidiary of BMS and any Dissenting Shares) will be converted into the right to
receive the Conversion Number of fully paid and nonassessable shares of BMS
Common Stock (the "Merger Consideration"). The "Conversion Number" will be equal
to the quotient of (a)(i) $86,000,000 divided by (ii) the Average Value of BMS
Common Stock divided by (b) the number of shares of Axion Common Stock
outstanding immediately prior to the Effective Time (calculated on a fully
diluted basis assuming that each share of Axion Preferred Stock outstanding
immediately prior to the Effective Time has been converted in accordance with
its terms into one share of Axion Common Stock and all Axion Options outstanding
immediately prior to the Effective Time have been exercised or canceled and that
(other than with respect to canceled Axion Options) the related subject shares
of Axion Common Stock are outstanding (collectively, the "Diluted Share
Assumption")). The term "Average Value of BMS Common Stock" means an amount
equal to the average of the per share closing prices of BMS Common Stock as
reported on the New York Stock Exchange Composite Transaction Tape (the "NYSE
Tape") for
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the 10 consecutive full NYSE trading days ending on the fifth full NYSE trading
day immediately preceding the Effective Time; provided that (A) if the Board of
Directors of BMS (the "BMS Board") declares a cash dividend on the outstanding
shares of BMS Common Stock having a record date after the Effective Time but an
ex-dividend date (based on "regular way" trading on the NYSE of shares of BMS
Common Stock, the "Ex-Date") that occurs during the averaging period, then for
purposes of computing the Average Value of BMS Common Stock, the closing price
on the Ex-Date and any trading day in the averaging period after the Ex-Date
will be adjusted by adding thereto the amount of such dividend and (B) if the
BMS Board declares a cash dividend on the outstanding shares of BMS Common Stock
having a record date before the Effective Time and an Ex-Date that occurs during
the averaging period, then for purposes of computing the Average Value of BMS
Common Stock, the closing price on any trading day before the Ex-Date will be
adjusted by subtracting therefrom the amount of such dividend. Notwithstanding
anything to the contrary contained in the Merger Agreement, in the event that as
of the Closing Date the Average Value of BMS Common Stock is less than $82.73
(the "Minimum Price"), then solely for the purposes of calculating the Merger
Consideration, the Average Value of BMS Common Stock will be deemed to be an
amount equal to the Minimum Price, and in the event that as of the Closing Date
the Average Value of BMS Common Stock is greater than $91.43 (the "Maximum
Price"), then solely for the purposes of calculating the Merger Consideration,
the Average Value of BMS Common Stock will be deemed to be the Maximum Price. If
prior to the Effective Time, the BMS Board declares a stock split, stock
combination, stock dividend or other non-cash distribution on the outstanding
shares of BMS Common Stock, then the Minimum Price and Maximum Price (and, if
the Ex-Date for such event occurs during the averaging period, the Average Value
of BMS Common Stock) will be appropriately adjusted to reflect such split,
combination, dividend or other distribution.
Based on the Diluted Share Assumption (and assuming exercise of all Axion
Options other than the Goldberg $10.00 Options, resulting in an aggregate of
9,977,756 shares of Axion Common Stock outstanding), and assuming an Average
Value of BMS Common Stock equal to $87.08 (the average per share closing price
of BMS Common Stock for the 10 full NYSE trading days ending on the first full
NYSE trading day immediately preceding the date hereof), the Conversion Number
would be 0.099 and the aggregate market value of BMS Common Stock to be received
by holders of Axion Common Stock in the Merger would be approximately $86
million, or $ per share of Axion Common Stock. However, the Average Value of BMS
Common Stock is determined as of five full NYSE trading days immediately
preceding the Effective Time, at which time the market value of BMS Common Stock
may be less than the Minimum Price (or greater than the Maximum Price), and the
number of issued and outstanding shares of Axion Common Stock is determined as
of immediately prior to the Effective Time (which date will be after the date of
the Special Meeting). Therefore there can be no assurance that these assumptions
will be true as of the Effective Time, and the Conversion Number may be
substantially less or greater than 0.099, and the aggregate market value of BMS
Common Stock to be received by holders of Axion Common Stock in the Merger may
be substantially less or greater than $86 million, or $8.62 per share. Under the
terms of the Merger Agreement, Axion does not have the right to decline to
consummate the Merger solely because the market value of BMS Common Stock
immediately prior to the Effective Time is substantially less than the Minimum
Price. Therefore, if the Merger is authorized and all other conditions to the
Merger are satisfied or waived on or prior to the Effective Time, Axion
stockholders will assume the risk of a decline in the market value of BMS Common
Stock below the Minimum Price after the date of the Special Meeting. See "The
Merger--Terms of the Merger--Conversion of Axion Common Stock in the Merger" and
"--Conditions--Conditions to Obligation of Axion".
As of the Record Date, 1,606,651 shares of Axion Common Stock were
outstanding and 8,471,105 shares of Axion Common Stock were issuable upon
conversion of the Axion Preferred Stock and the exercise of Axion Options. The
approval of the Preferred Stock Proposal by holders of Axion Preferred Stock,
the conversion of each issued and outstanding share of Axion Preferred Stock
into one fully paid and nonassessable share of Axion Common Stock and the
exercise or cancelation of all Axion Options, in each case prior to the
Effective Time, are each conditions to the Merger. Michael D. Goldberg, the
President and Chief Executive Officer of Axion, has advised Axion that he does
not intend to exercise his options to purchase 100,000 shares of Axion Common
Stock at a price of $10.00 per share (the "Goldberg $10.00 Options").
Accordingly, the Goldberg $10.00 Options will
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be canceled prior to the Effective Time, and assuming the conversion of each
issued and outstanding share of Axion Preferred Stock and the exercise of all
Axion Options other than the Goldberg $10.00 Options, it is anticipated that
there will be approximately 9,977,756 shares of Axion Common Stock issued and
outstanding on the Closing Date.
Fractional Shares.
No fractional shares of BMS Common Stock will be issued in the Merger. The
Merger Agreement provides that each Axion stockholder who otherwise would have
been entitled to receive a fraction of a share of BMS Common Stock will receive,
in lieu thereof, cash (without interest) in an amount, less the amount of any
withholding taxes which may be required therein equal to such a fractional part
of a share of BMS Common Stock multiplied by the per share closing price of BMS
Common Stock as reported on the NYSE Tape on the full NYSE trading day
immediately preceding the Closing Date.
Effective Time; Closing.
The Merger will become effective and the Effective Time will occur
immediately upon the filing of a certificate of merger (the "Certificate of
Merger") with the Delaware Secretary of State or at such time thereafter as is
provided in the Certificate of Merger. The Merger Agreement provides that the
closing (the "Closing") of the Merger will take place on a date to be specified
by the parties which date will be no later than the first business day after
satisfaction of the conditions to the Merger Agreement, unless another date is
agreed to in writing by BMS, BMS Sub and Axion.
Distribution of Merger Consideration; Exchange of Share Certificates.
At or immediately after the Closing Date, BMS will send each Former Axion
Stockholder a letter (the "Letter of Transmittal") notifying such stockholder of
the consummation of the Merger and setting forth instructions for the surrender
of certificates (the "Certificates") that before the Effective Time represented
Axion Common Stock. Promptly after receipt by the Exchange Agent of any
Certificates surrendered in accordance with the instructions set forth in the
Letter of Transmittal, the Exchange Agent will distribute to the Former Axion
Stockholder entitled thereto the certificates representing whole shares of BMS
Common Stock and a check in lieu of fractional shares of BMS Common Stock into
which the shares of Axion Common Stock represented by the surrendered
Certificates were converted in the Merger. The new certificates shall not
include the number of Escrowed Shares deemed to have been placed in escrow by
such Former Axion Stockholder. AXION STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER
THEIR CERTIFICATES REPRESENTING OUTSTANDING SHARES OF AXION COMMON STOCK FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM BMS. Execution and
delivery of the Letter of Transmittal by each Former Axion Stockholder will
result in each such Former Axion Stockholder becoming a party to and bound by
the Indemnification Agreement, Tax Matters Agreement and Escrow Agreement and
will result in the irrevocable appointment of AHC as each such Former Axion
Stockholder's agent with respect to all matters arising under such agreements.
See "The Distribution--Terms of the Indemnification Agreement", "--Terms of the
Tax Matters Agreement" and "--Terms of the Escrow Agreement". These agreements
will, among other things, subject each such Former Axion Stockholder as well as
AHC and its subsidiaries to certain indemnity obligations to BMS and its
subsidiaries and provide for the Escrowed Shares and the Escrowed Cash to be
placed in escrow to secure these obligations. See "Special Factors--Release of
Escrowed Cash; Indemnification Obligations of AHC and Former Axion
Stockholders."
Stock Exchange Listing.
BMS has agreed in the Merger Agreement to use its reasonable best efforts
to cause the shares of BMS Common Stock issued in the Merger to be approved for
listing on the NYSE, subject to official notice of
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issuance, prior to the Closing Date. Such approval for listing is a condition to
the obligation of each of BMS, BMS Sub and Axion to consummate the Merger.
Conditions.
The Merger Agreement provides that the respective obligation of each party
to effect the Merger is subject to certain conditions, including the approval of
the Merger Proposal by the stockholders of Axion, the approval of the proposal
to convert, immediately prior to the Distribution Record Date each issued and
outstanding share of Axion Preferred Stock into one fully paid and nonassessable
share of Axion Common Stock by holders of Axion Preferred Stock, the receipt of
opinions with respect to the tax consequences of the Merger and the
Distribution, respectively, consummation of the Contributions and the
Distribution, the absence of certain material adverse changes, the receipt of
certain regulatory approvals and, in the case of BMS, the exercise or
cancelation of all outstanding Axion Options, the conversion of all shares of
Axion Preferred Stock into shares of Axion Common Stock, the absence of Axion
indebtedness in excess of specified levels and the absence of Dissenting Shares.
Termination.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the stockholders of Axion: (a) by mutual written consent of BMS,
BMS Sub and Axion; (b) by either BMS or Axion: (i) if, upon a vote at the
Special Meeting or any adjournment thereof, any required approval of the
stockholders of Axion shall not have been obtained; (ii) if the Merger shall not
have been consummated on or before October 31, 1996, unless the failure to
consummate the Merger is the result of a wilful and material breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement;
provided, however, that the passage of such period will be tolled for any part
thereof (but in no event beyond December 31, 1996) during which any party will
be subject to a nonfinal order, decree, ruling or action restraining, enjoining
or otherwise prohibiting the consummation of the Merger or the calling or
holding of the Special Meeting of Stockholders of Axion to be held on _______,
1996; or (iii) if any governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action will have
become final and nonappealable; (c) by Axion if BMS or BMS Sub shall have failed
to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement or any of the other Documents to be performed
by BMS or BMS Sub at or prior to the time of termination, which breach will not
have been cured within 30 days following written notice of such breach; or (d)
by BMS if Axion or any of its subsidiaries shall have failed to comply in any
material respect with any of the covenants or agreements contained in the Merger
Agreement or any Document to be performed by Axion or any of its subsidiaries at
or prior to the time of termination, which breach shall not have been cured
within 30 days following written notice of such breach.
Accounting Treatment.
The Merger will be accounted for by BMS as a "purchase" for financial
accounting purposes in accordance with generally accepted accounting principles
("GAAP") whereby the purchase price will be allocated based on the fair values
of assets acquired and liabilities assumed.
THE DISTRIBUTION
This section of the Information Statement describes certain aspects of the
proposed Distribution. To the extent that they relate to the Distribution
Agreement, the Indemnification Agreement, the Escrow Agreement and the Tax
Matters Agreement, the following descriptions do not purport to be complete and
are qualified in their entirety by reference to such agreements which are
attached as Appendix B through E to the Proxy
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Statement/Prospectus, respectively, and are incorporated herein by reference.
All stockholders are urged to read such agreements in their entirety.
Background of and Reasons for the Distribution
Axion's management has regularly reviewed possible strategies and
transactions to enhance Axion's competitiveness and to position its assets and
businesses in a manner that would increase the value of those assets and of
Axion's businesses and operations, thereby increasing stockholder value. These
strategies included a possible acquisition, joint ventures, internal
restructurings, outsourcing of operational services and divestiture of one of
its businesses. For a discussion of the events leading up to the execution of
the Merger Agreement, see "The Merger -- Background of the Merger".
Pursuant to the Merger Agreement and the transactions described therein,
BMS will acquire the Retained Acquired Business in each case, which consists of
(i) OTNC, including OTNC's interest in OTN, and (ii) the OPUS Station Business,
including in each case the assets and certain of the liabilities related
thereto.
The Retained Business constitutes the only business, assets and liabilities
of Axion that BMS has agreed to acquire. As a result, the sale of the Retained
Business will be effected through a series of sequential transactions, including
the Contributions, the Distribution and the Merger, all as set forth in the
Merger Agreement and the Distribution Agreement. The purpose of this complex
structure is to permit BMS to acquire the Retained Business on a tax-free basis
to Axion and its stockholders in a transaction in which Axion stockholders will
receive BMS Common Stock and will also retain their proportionate equity
interests in the Acquired Business in the form of AHC Preferred Stock to be
received in the Distribution. Accordingly, a "reverse spinoff" structure was
adopted pursuant to which the Acquired Business will be transferred to AHC and
its subsidiaries and the AHC Preferred Stock will, prior to the Merger, be
distributed to Axion stockholders in the Distribution.
Although the Distribution will not be effected unless the Merger is
approved and about to occur, the Distribution is separate from the Merger and
the AHC Preferred Stock to be received by holders of Axion Common Stock in the
Distribution does not constitute a part of the consideration to be received by
Axion stockholders in the Merger. Axion stockholders are not being asked to
approve the Distribution, which is not subject to stockholder approval.
Terms of the Distribution Agreement
The Preference Amount
Immediately prior to the Time as of which the Contributions are effective
(the "Time of Contributions") Axion will cause OTNC to cause OTN to distribute
to OTNC an amount equal to $13,615,147 (the "Preference Amount"), in full
satisfaction of all amounts that may be due as of, or in respect of any period
ending on or prior to, the Closing Date to OTNC in respect of its Capital
Account Prime Rate Amount and the General Partner Cumulative Preference Amount
(as each such term is defined in the Partnership Agreement). Notwithstanding the
preceding sentence, if the Closing Date occurs after September 30, 1996 and
Axion shall not have used Best Closing Efforts (as defined below) to cause the
Closing to occur on or prior to September 30, 1996, the Preference Amount will
be paid only to the extent of cash and cash equivalents held by OTN as of
September 30, 1996 (it being understood that for purposes of this paragraph the
amount of cash and cash equivalents held by OTN as of September 30, 1996 will be
reduced by the amount, if any, by which outstanding indebtedness for borrowed
money, or any guaranties in respect of any indebtedness for borrowed money of
any third party, in respect of which OTN is obligated on September 30, 1996 will
exceed $35,617,000). Notwithstanding that if OTNC fails to use Best Closing
Efforts it will not have received the full amount of the Preference Amount from
OTN to which it would otherwise have been entitled, under the terms of the Tax
Matters Agreement AHC shall nevertheless be obligated to indemnify Axion and BMS
for any taxes with respect to the income of OTN for all periods prior
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to June 30, 1996, including such income that is not distributed as a Preference
Amount to OTNC by reason of the fact that OTNC will not have used Best Closing
Efforts. "Best Closing Efforts" means, in addition to Axion not otherwise
knowingly taking any action to frustrate or delay the Merger, the following: (i)
Axion will have diligently responded to all Securities and Exchange Commission
(the "Commission") comments to the Registration Statement on Form S-4 filed by
BMS (including exhibits and amendments thereto, the "BMS Registration Statement"
or the "Form S-4") related to Axion or its subsidiaries (A) within five business
days after receipt by Axion or its counsel of any initial Commission comments
the Form S-4 and (B) within a reasonably prompt period under the circumstances
after receipt by Axion or its counsel of any subsequent Commission comments to
the Form S-4; (ii) (A) in the event that the no-action relief requested by Axion
from the Commission with respect to the distribution of AHC Preferred Stock
without registration under the Securities Act is obtained from the Commission,
the Information Statement shall have been distributed to Axion stockholders at
the same time as the Proxy Statement/Prospectus to which this Information
Statement is attached is distributed to such Axion stockholders or (B) in the
event such no-action relief is not obtained from the Commission either (I)(x)
cause the Form S-1 (as defined in the Merger Agreement) to be filed within ten
business days after Axion has been finally advised orally or in writing that
no-action relief will not be granted and (y) diligently respond to all
Commission comments to the Form S-1 (1) within five business days after receipt
by Axion or its counsel of any initial Commission comments to the Form S-1 and
(2) within a reasonably prompt period under the circumstances after receipt by
Axion or its counsel of any subsequent Commission comments to the Form S-1 or
(II)(x) cause the information with respect to Axion and its Subsidiaries
required to be included in an Application (the "Application") to be made by the
applicants to the California Commissioner of Corporations (the "Commissioner")
within five business days after Axion has been finally advised orally or in
writing that no-action relief will not be granted and (y) diligently respond as
promptly as practicable to all requests and comments regarding the Application
within a reasonably prompt period under the circumstances after receipt by the
applicants or their respective counsel of any such requests or comments and
(III) cause the Commissioner to issue a permit to authorize the AHC Preferred
Stock to be included in the Distribution; and (iii) Axion will have within two
business days following notice to Axion of clearance by the Commission of the
Form S-4 called the Special Meeting of stockholder of Axion for the purpose of
approving the Merger and the transactions contemplated by the Merger Agreement,
the Distribution Agreement, the Indemnification Agreement, the Tax Matters
Agreement, the Escrow Agreement, the Transitional Services Agreement, the AHC
Supply Agreement, the OnCare Supply Agreement, the License Agreement, the AHC
Medstation Agreement, the OnCare Medstation Agreement and each of the
Non-Competition Agreements (collectively, the "Documents") with such meeting to
be held within twenty business days after the date such meeting is called.
The Contributions
Immediately prior to the Time of Contributions, OTN will distribute to
OTNC, which will in turn distribute to Axion, the Preference Amount. Immediately
prior to the Time of Distribution, (i) OPUS will contribute the OPUS Sub Assets
(as defined below) to OPUS Sub and OPUS Sub will assume the OPUS Sub Liabilities
(as defined below), (ii) OPUS will distribute the outstanding capital stock of
OPUS Sub to Axion and (iii) Axion will contribute all the assets of Axion and
its Subsidiaries (including the outstanding capital stock of OPUS Sub) other
than the OPUS Sub Assets (which will remain assets of OPUS Sub) and the Retained
Assets (as defined below) to AHC and AHC will assume all the Liabilities (as
defined below) of Axion and its subsidiaries other than the OPUS Sub Liabilities
(which will remain Liabilities of OPUS Sub) and the Retained Liabilities (as
defined below) (the transactions in clauses (i), (ii) and (iii), collectively,
the "Contributions"). "OPUS Sub Assets" means all the assets of OPUS other than
any such assets that are OPUS Station Assets and will include the OPUS Matrix
Software, all Contracts relating to the use and installation of OPUS Matrix
Software and all commitments relating to the future use and installation of OPUS
Matrix Software, including the contracts and commitments scheduled in the
Distribution Agreement; and certain other assets scheduled in the Distribution
Agreement. "OPUS Station Assets" means all the assets of Axion and its
subsidiaries that are primarily used by or are held for use in or are necessary
for the conduct of the "OPUS Station Business", including (a) the Pyxis
Contract, as the same may be amended and in effect as of the Time of
Contribution, (b) all rental contracts for all installed OPUS Station sites and
all
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commitments for the future installation of OPUS Station sites, as the same may
be amended and in effect as of the Time of Contribution, including the contracts
and commitments scheduled in the Distribution Agreement, (c) all intellectual
property related to the OPUS Station Business (including plans, drawings,
product software and other software used or useful to access data from and to
operate OPUS Stations) other than OPUS Matrix Software, (d) all information
derived from OPUS Station installations as described in a schedule to the
Distribution Agreement ("OPUS Station Data") collected from installed OPUS
Stations prior to, at and after the Time of Contribution including the installed
OPUS Stations at sites subject to the contracts and commitments scheduled in the
Distribution Agreement, and (e) certain other assets scheduled in the
Distribution Agreement; provided, however, that no cash or cash equivalents of
Axion or any of its subsidiaries (other than the Partnership) and no guarantees,
letters of credit or foreign exchange contracts of Axion or any of its
subsidiaries (other than the Partnership) will constitute OPUS Station Assets.
"OPUS Sub Liabilities" means all the debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever or
however arising and whether or not the same would be required by GAAP to be
reflected in financial statements or disclosed in the notes thereto
(collectively "Liabilities") of OPUS other than the Liabilities that are OPUS
Station Liabilities or are otherwise Retained Liabilities and include the
Liabilities scheduled in the Distribution Agreement. "Retained Assets" means (i)
the OPUS Station Assets; (ii) all the assets of the Partnership, all the assets
of OTNC and any other assets of Axion and its Subsidiaries that are primarily
used by or are held for use in or are necessary for the conduct of the business
of OTNC or the Partnership; (iii) all the outstanding capital stock of OTNC and
OPUS and the general partnership interest of OTNC in the Partnership; (iv)
subject to certain provisions of the Distribution Agreement, all current and
former insurance policies of Axion and its Subsidiaries in effect at or prior to
the Time of Contribution and the right to Insurance Proceeds (as defined in the
Distribution Agreement) thereunder; (v) the Retained Cash (as defined below);
(vi) all Unpaid Intercompany Receivables (as defined in the Distribution
Agreement) due from AHC and its Subsidiaries to the Retained Company and its
Subsidiaries after giving effect to the transaction contemplated by the
Distribution Agreement; (vii) any BMS Tax Refunds (as such term is defined in
the Tax Matters Agreement); (viii) the "Oncology Therapeutics Network (TM)" and
"Oncology Therapeutics Network (SM)" trademarks, trade names, service marks,
service names and all derivatives thereof; and (ix) the assets scheduled in the
Distribution Agreement.
"Retained Business" shall mean the OPUS Station Business, the business of
the Partnership, the Retained Assets and the Retained Liabilities. "Retained
Liabilities" means the OPUS Station Liabilities, any Liabilities of Axion and
its subsidiaries directly and solely related to the business of OTN including
certain liabilities scheduled in the Distribution Agreement, those Taxes (as
defined herein) and other items for which the BMS Indemnifying Parties have
agreed to indemnify the Axion Indemnified Parties (as defined herein) pursuant
to the Tax Matters Agreement, such other Liabilities of Axion and its
subsidiaries to the extent they are directly and primarily related to OTN and/or
the OPUS Station Business including certain liabilities scheduled in the
Distribution Agreement, the Axion Expenses (as defined below), but only to the
extent that such expenses do not exceed $2 million. Any Liabilities of the
Retained Companies to the extent such Liabilities solely relate to or arise from
events, occurrences, actions, omissions, facts or circumstances that occur after
the Effective Time all Unpaid Intercompany Payables due from the Retained
Company and its Subsidiaries to AHC and its Subsidiaries after giving effect to
the transactions contemplated by the Distribution Agreement and the Liabilities
scheduled in the Distribution Agreement; provided, however, notwithstanding the
foregoing, that Retained Liabilities will not include any Liabilities described
in the definition of Assumed Liabilities. "OPUS Station Liabilities" means any
Liabilities of Axion, its subsidiaries and OTN directly and solely related to
the OPUS Station Business and includes certain Liabilities scheduled in the
Distribution Agreement. "Retained Cash" means (a) an amount in cash equal to the
excess, if any, of the Axion Expenses scheduled in the Merger Agreement over
$2,000,000, (b) any cash and cash equivalents held by the Partnership (after
giving effect to the payment of the Preference Amount in accordance with the
provisions of the Merger Agreement), (c) an amount in cash equal to the amount,
if any, by which the amount of JV Sales Taxes (as defined in the Tax Matters
Agreement) paid by the Partnership at or prior to the Time of Contribution
exceeds $667,402 and (d) an amount in cash equal to any amounts withheld from
employees as of the Closing Date related to employee benefit arrangements for
Continuing Axion Employees (as defined in the Distribution Agreement) or in
respect of payroll taxes and employee contributions to any Benefit Plan.
"Assumed
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Liabilities" means all Liabilities of Axion and its Subsidiaries, other than
Retained Liabilities, and includes (i) the Liabilities set forth in the
Distribution Agreement relating to the indemnification by AHC of the BMS
Indemnified Parties of liabilities relating to or arising from certain employee
matters; (ii) those Taxes for which the AHC Indemnifying Parties (as defined
herein) have agreed to indemnify the BMS Indemnified Parties pursuant to the Tax
Matters Agreement; (iii) all Unpaid Intercompany Payables due from AHC and its
Subsidiaries to the Retained Company and its Subsidiaries after giving effect to
the transactions contemplated by Section 5.2 of the Distribution Agreement; (iv)
the OPUS Sub Liabilities; and (v) all Liabilities relating to or arising from
claims of any stockholders, directors, officers, employees or agents of Axion
and its Subsidiaries related to or arising from the execution by Axion or any of
its subsidiaries of the Distribution Agreement or the other Documents or the
consummation of the transactions contemplated thereby (including any claims for
indemnification by any officer or director of Axion or any of its subsidiaries
pursuant to any applicable law, the charter and by-laws or other governing
instruments of Axion or any such subsidiary or any indemnification agreement
between Axion or any such subsidiary and any such person (including the
indemnification agreements listed on Schedule 2); and (vi) those Liabilities
scheduled in the Distribution Agreement.
The Distribution
Effective immediately following the Contributions and immediately prior to
the Effective Time, each issued and outstanding share of AHC Common Stock will
be converted into that number of shares of AHC Preferred Stock equal to the
quotient of the number of shares of Axion Common Stock outstanding immediately
prior to the Time of Distribution (including any shares of Axion Common Stock
issued in connection with the conversion of Axion Preferred Stock to Axion
Common Stock and the exercise of Axion Options, in each case in connection with
the consummation of the Merger) divided by the number of shares of AHC Common
Stock outstanding immediately prior to the Time of Distribution. Axion will
declare and pay a dividend of all the outstanding AHC Preferred Stock to the
holders of Axion Common Stock followed by the distribution of certificates
representing one share of AHC Preferred Stock for each share of Axion Common
Stock held by each holder of record of Axion Common Stock, at the Time of
Distribution. Immediately following the Contributions and immediately prior to
the Effective Time, subject to the satisfaction or waiver of the conditions set
forth in the Distribution Agreement, the Axion Board will formally declare the
Distribution and Axion will effect the Distribution by delivery of certificates
for AHC Preferred Stock to the transfer agent for delivery to the holders of
Axion Common Stock entitled thereto. The Distribution will be deemed to be
effective upon notification by Axion to the transfer agent that the Distribution
has been declared and that the transfer agent is authorized to proceed with the
distribution of AHC Preferred Stock, which notification Axion agrees to deliver
promptly following such declaration.
Conditions to the Distribution
The obligations of Axion to consummate the Distribution are subject to the
fulfillment of each of the following conditions: (a) all the transactions or
obligations contemplated by the Distribution Agreement to be consummated or
performed at or prior to the Time of Distribution will have been successfully
consummated or so performed; (b) each condition to the closing of the Merger set
forth in the Merger Agreement (other than the completion of the Contributions
and the Distribution) will have been satisfied (or waived by the party for whose
benefit such condition exists); (c) the Axion Board will be reasonably satisfied
that, after giving effect to the Distribution, (i) AHC will not be insolvent and
will not have unreasonably small capital with which to engage in its businesses
and (ii) Axion's surplus would be sufficient to permit, without violation of
Section 170 of the DGCL, the Distribution; (d) all filings required to be made
with, and all consents, approvals and authorizations required to be obtained
from, any governmental entity in connection with the execution, delivery and
performance of the Distribution Agreement or the consummation of the
Contributions, the Distribution or the other transactions contemplated by the
Distribution Agreement will have been made or obtained; (e) no temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution will be in effect; and (f) Ernst
& Young
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shall have reaffirmed its opinion that the Distribution should qualify as a
tax-free spinoff pursuant to Section 355 of the Code.
Termination, Amendments and Waivers
Notwithstanding anything to the contrary therein, the Distribution
Agreement may be terminated and the transactions contemplated thereby abandoned
at any time prior to the Time of Distribution by mutual written consent of Axion
and AHC but only in the event the Merger is terminated by any party thereto in
accordance with the terms thereof. The Distribution Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto and consented to by BMS. By an instrument in writing, the parties
thereto may waive compliance by any other party with any term or provision of
the Distribution Agreement that such other party was or is obligated to comply
with or perform; provided that no such waiver by Axion will be effective unless
consented to by BMS.
Terms of the Indemnification Agreement
Indemnification by the AHC Indemnifying Parties
AHC, OPUS Sub, certain other subsidiaries of AHC, and of the Former Axion
Stockholders, the Surviving Corporation, BMS and certain of its subsidiaries
will enter into a Post-Closing Covenants and Indemnification Agreement, the form
of which is attached as Appendix C to the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G and is incorporated herein
by reference (as it may be amended, supplemented or otherwise modified from time
to time, the "Indemnification Agreement"). Pursuant to the Indemnification
Agreement, AHC, OPUS Sub together with any corporation, company or other entity
(i) more than 81% of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
the partnership, joint venture or unincorporated association), but more than 81%
of whose ownership interest representing the right to make decisions for such
other entity is, in each case, owned or controlled, directly or indirectly, by
AHC (collectively, the "81% AHC Subsidiaries", together with AHC and OPUS Sub,
the "AHC Indemnifying Parties"), and each Former Axion Stockholder will, jointly
and severally, indemnify, defend and hold harmless BMS, its direct and indirect
subsidiaries, including the Surviving Corporation and its subsidiaries
(including the Partnership) and their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives (collectively, the "BMS Indemnified Parties") from and against,
and pay or reimburse the BMS Indemnified Parties for all Indemnifiable Losses
(as defined below), as incurred: (a) to the extent relating to or arising from
(i) any breach of any representation or warranty by Axion or any of its
subsidiaries in the Merger Agreement or any other Document (or in any
certificate or similar document delivered pursuant thereto) or (ii) any breach
of any covenant of Axion or any of its subsidiaries in the Merger Agreement or
any other Documents requiring performance on or prior to the Closing Date or
(iii) any breach of any covenant of AHC and its subsidiaries in the Merger
Agreement or any other Documents requiring performance after the Closing Date;
(b)(i) in the case of the Form S-4 and, if required in connection with the
Distribution, the Form S-1 or the Application, relating to or arising from any
claim that there existed any untrue statement of a material fact or any omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) in the case of the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G, any other Filings (as defined below) and, if required in connection with the
Distribution, this Information Statement, relating to or arising from any claim
that there existed any untrue statement of a material fact or any omission of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or (iii) in the case of any Required AHC Documents or other Filings
that are provided or required to be delivered to the Axion stockholders,
relating to or arising from any failure by Axion to so provide or deliver such
Required AHC Documents or other Filings; but only, in the case of (i) or (ii),
with respect to information furnished or to be furnished by Axion or its
representatives contained in or omitted from the Filings; (c) relating to or
arising from the Acquired Assets, the Assumed Liabilities (including the failure
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by AHC or any of the AHC Companies to otherwise perform or discharge such
Assumed Liabilities), the Acquired Businesses or the current, former or future
operations or employees of AHC and its subsidiaries' businesses whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring, existing or asserted before, at or
after the Effective Time, other than, in each case, any Retained Liabilities;
(d) relating to or arising from the current or former operations or employees of
Axion and its current or former subsidiaries' businesses whether such
Indemnifiable Losses relate to or arise from events, occurrences, actions,
omissions, facts or circumstances occurring or existing before or at the
Effective Time, whether asserted before, or at the Effective Time, other than,
in each case, any Retained Liabilities; (e) relating to or arising from any
Axion Expenses to the extent that such Axion Expenses were not included in the
schedule of Axion Expenses delivered to BMS pursuant to the Merger Agreement and
the aggregate amount of all Axion Expenses exceeds $2,000,000; (f) all
Liabilities relating to or arising out of (i) the breach of any term, covenant
or condition contained in the Partnership Agreement, the Trademark License
Agreement dated as of July 8, 1993 between BMS and the Partnership (the
"Trademark License Agreement") or any other agreement to which any of the
Exculpated Parties (as defined below) and the Partnership are parties (other
than any breach by the Limited Partner (as such term is defined in the
Partnership Agreement), its officers, directors, stockholders, employees or
affiliates or any member of the Management Committee appointed by the Limited
Partner pursuant to Section 7.02(c) of the Partnership Agreement) or (ii) the
gross negligence or wilful misconduct by any Exculpated Party or its obligations
under the Partnership Agreement, the Trademark License Agreement or any other
such agreement, in each case relating to or arising out of events, occurrences,
actions, omissions, facts or circumstances occurring or existing at or prior to
the Effective Time, whether asserted at, prior to or after the Effective Time;
(g) all Liabilities of the Partnership under Section 11(b) of the Sales Agency
Agreement dated as of July 8, 1993, as amended, between BMS and the Partnership,
relating to or arising out of events, occurrences, actions, omissions, facts or
circumstances occurring or existing at or prior to the Effective Time, whether
asserted at, prior to or after the Effective Time; or (h) incurred in connection
with the enforcement by the BMS Indemnified Parties of their rights to be
indemnified and held harmless under the Indemnification Agreement.
"Indemnifiable Losses" means, subject to the limitation of the indemnification
obligations under the Indemnification Agreement of the Former Axion Stockholders
to the amounts held in the BMS Stock Escrow Fund ("BMS Stock Escrow Fund"), all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements, whether
or not resulting from third party claims, including interest and penalties
recovered by a third party with respect thereto and out-of-pocket expenses and
reasonable attorneys' and accountants' fees and expenses incurred in the
investigation or defense or any of the same or in asserting, preserving or
enforcing any of the rights of the AHC Indemnified Parties (as defined below) or
the BMS Indemnified Parties under the Indemnification Agreement, suffered by any
of the BMS Indemnified Parties or the AHC Indemnified Parties who or which may
seek indemnification under the Indemnification Agreement; provided, however,
that notwithstanding anything to the contrary set forth in the Indemnification
Agreement, Indemnifiable Losses will not include any such losses relating to or
arising from any breach of any representation, warranty or covenant contained in
Section 4.01(j) of the Merger Agreement or any other amount relating to Taxes
(as defined herein) or for which indemnity is payable under the Tax Matters
Agreement. "Filings" means the Form S-4, the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G, the Required AHC Documents
or any other document filed or required to be filed with the Commission or any
state securities commission or otherwise provided, or required to be delivered,
to the stockholders of Axion or, following the Distribution, the stockholders of
AHC, in connection with the transactions contemplated by the Merger Agreement or
the other Documents, any preliminary or final form thereof or any amendment or
supplement thereto. "AHC Indemnified Parties" means AHC and its direct or
indirect subsidiaries and their respective affiliates and each of their
respective officers, directors, employees, stockholders, agents and
representatives. "Exculpated Parties" means OTNC, its officers, directors,
stockholders, employees, or affiliates, the Chairman of the Management Committee
(as such term is defined in the Partnership Agreement) or any other officer of
the Partnership or the members of the Management Committee appointed by OTNC
pursuant to the Partnership Agreement.
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Limitations on Indemnification Obligations
The indemnification obligations of the AHC Indemnifying Parties for (i) any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that is directly related to OTN
will equal 50% of such Indemnifiable Loss, and (ii) any other Indemnifiable Loss
shall equal 100% of such Indemnifiable Loss. The AHC Indemnifying Parties will
not have any liability under the Indemnification Agreement with respect to any
Indemnifiable Loss of the type set forth in clause (a)(i) of "--Indemnification
by the AHC Indemnifying Parties" above or (ii) that is directly related to OTN
or the OPUS Station Business unless the aggregate of all such Indemnifiable
Losses for which the AHC Indemnifying Parties would but for this sentence be
liable exceeds on an aggregate basis an amount equal to $500,000 and provided
that the AHC Indemnifying Parties' liability with respect to such Indemnifiable
Losses will in no event exceed $12,000,000. The indemnification obligations of
the AHC Indemnifying Parties under the Indemnification Agreement with respect to
(i) any Indemnifiable Loss of the type set forth in clause (a)(i) of
"--Indemnification by the AHC Indemnifying Parties" above or (ii) that directly
relates to OTN or the OPUS Station Business (other than Indemnifiable Losses
related to or arising from any breach of the representations and warranties in
Section 4.01(c), 4.01(n), or 4.01(p) of the Merger Agreement) will terminate on
March 31, 1998, (ii) any Indemnifiable Losses related to or arising from any
breach of the representations and warranties in Section 4.01(c), 4.01(n) or
4.01(p) of the Merger Agreement will terminate on the third anniversary of the
Effective Time and (iii) all other Indemnifiable Losses will not terminate.
Notwithstanding anything to the contrary set forth in the Indemnification
Agreement (except as provided in the following sentence), the indemnification
obligations of the Former Axion Stockholders under the Indemnification Agreement
will be limited to the amounts held in the BMS Stock Escrow Fund. The
limitations on the AHC Indemnifying Parties' liability under the Indemnification
Agreement as set forth in this paragraph will not apply to any Indemnifiable
Losses relating to or arising from fraud or any misrepresentation or breach of
which Axion, AHC, the 81% AHC Subsidiaries (as defined herein) or their
respective officers and directors had knowledge or any intentional failure to
perform or comply with any covenant (collectively, "fraud"), and the AHC
Indemnifying Parties shall be jointly and severally liable for all Indemnifiable
Losses with respect thereto; provided, however, that a Former Axion Stockholder
will be liable for Indemnifiable Losses related to or arising from fraud only
with respect to any fraud by such Former Axion Stockholder. The indemnification
obligations of the AHC Indemnifying Parties under this Article II shall be
subject to offset as provided in the Tax Matters Agreement.
Indemnification by the BMS Indemnifying Parties
Pursuant to the Indemnification Agreement, BMS, Axion, OTNC, the
Partnership and OPUS (collectively, the "BMS Indemnifying Parties") will,
jointly and severally, indemnify, defend and hold harmless the AHC Indemnified
Parties from and against, and pay or reimburse the AHC Indemnified Parties for
all Indemnifiable Losses, as incurred: (a) relating to or arising from the
Retained Assets, the Retained Liabilities (including the failure by Axion or any
of its subsidiaries to pay, perform or otherwise discharge such Retained
Liabilities in accordance with their terms), whether such Indemnifiable Losses
relate to or arise from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the Effective
Time; (b) to the extent relating to or arising from any breach of any
representation, warranty or covenant of BMS or BMS Sub in the Merger Agreement
or any other Document (or in any certificate or similar document delivered
pursuant thereto); (c) (i) in the case of the Form S-4 and, if required in
connection with the Distribution, the Form S-1 or the Application, relating to
or arising from any claim that there existed any untrue statement of a material
fact or any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) in the case of the
Proxy Statement/Prospectus to which this Information Statement is attached as
Appendix G, any other Filings and, if required in connection with the
Distribution, this Information Statement, relating to or arising from any claim
that there existed any untrue statement of a material fact or any omission of a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; but only in each case with respect to information furnished or to be
furnished by BMS or its representatives contained in or omitted from the
Filings; or (d) incurred in connection with the enforcement by
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the AHC Indemnified Parties of their rights to be indemnified, defended and held
harmless under the Indemnification Agreement.
Limitation on Indemnification Obligations
The indemnification obligations of the BMS Indemnifying Parties under the
Indemnification Agreement with respect to (a) any Indemnifiable Loss of the type
set forth in clause (b) of "--Indemnification by the BMS Indemnifying Parties"
above will terminate on March 31, 1998 and (b) all other Indemnifiable Losses
will not terminate.
Covenants
AHC and each of the 81% AHC Subsidiaries agrees that, unless BMS otherwise
consents in writing, neither AHC nor any of the 81% AHC Subsidiaries will: (i)
(A) in the case of AHC, liquidate, dissolve or wind up its affairs or (B) in the
case of any 81% AHC Subsidiary, liquidate, dissolve or wind up its affairs
unless the assets of such 81% AHC Subsidiary (or, if such 81% AHC Subsidiary
shall not be wholly owned, a proportionate amount of such assets equal to the
direct and indirect ownership interest of AHC in such 81% AHC Subsidiary) shall
have been distributed to or otherwise acquired by AHC; (ii) (A) merge with or
into or consolidate with any other person, or (B) sell, lease or otherwise
transfer all or substantially all the assets of AHC and the 81% AHC
Subsidiaries, taken as a whole (including by means of the sale of the capital
stock of any subsidiary) to any other person (in each case, whether in one or a
series of transactions), unless, in each case, such person explicitly agrees to
assume the obligations of AHC and the 81% AHC Subsidiaries under the
Indemnification Agreement, the Tax Matters Agreement or the Escrow Agreement
pursuant to an agreement reasonably satisfactory in form and substance to BMS
and its counsel; (iii) engage in any recapitalization or restructuring pursuant
to which any cash, securities or other property shall be distributed in respect
of its capital stock or effect any other distribution (by means of dividend,
redemption or otherwise) in respect of its capital stock (other than, in the
case of any 81% AHC Subsidiary, any such distribution to AHC); (iv) enter into
any transactions with affiliates of AHC or any 81% AHC Subsidiary unless (1) any
such transaction is between or among AHC and the 81% AHC Subsidiaries or (2) the
terms of such transactions are fair and reasonable to AHC or the 81% AHC
Subsidiaries, as the case may be, as in a comparable transaction made on an
arm's length basis between unaffiliated parties; or (v) agree to or otherwise
suffer any of the foregoing in (i), (ii), (iii) or (iv) above or otherwise take
any action or fail to take any action designed to restrict, reduce or otherwise
limit the rights of the BMS Indemnified Parties under the Indemnification
Agreement, the Tax Matters Agreement or the Escrow Agreement or the ability of
any BMS Indemnified Party to collect any amount owed to it under the
Indemnification Agreement, Tax Matters Agreement or the Escrow Agreement.
For purposes of this section, AHC and its subsidiaries acknowledge and
agree that OnCare and its subsidiaries are affiliates of AHC and the AHC
Subsidiaries.
AHC shall cause each of its subsidiaries that shall be or become an 81% AHC
Subsidiary (as defined below) on or after the date hereof to enter into an
agreement, reasonably satisfactory in form and substance to both BMS and its
counsel and AHC and its counsel, pursuant to which such subsidiary will agree to
be bound by the terms of each of this the Indemnification Agreement, the Tax
Matters Agreement and the Escrow Agreement as if such subsidiary were named an
81% AHC Subsidiary herein and therein. "81% AHC Subsidiary" means any
corporation, company or other entity (i) more than 81% of whose outstanding
shares or securities (representing the right to vote for the election of
directors or other managing authority) are, or (ii) which does not have
outstanding shares or securities (as may be the case in a partnership, joint
venture or unincorporated association), but more than 81% of whose ownership
interest representing the right to make decisions for such other entity is,
owned or controlled, directly or indirectly, by AHC.
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The provisions of the Indemnification Agreement will terminate on the later
of (a) the sixth anniversary of the Effective Time and (b) the expiration of the
statute of limitations (including any extensions thereof arising from audits
commenced on or before such sixth anniversary) for all Federal income tax
returns of the Affiliated Group (as defined in the Tax Matters Agreement) for
all taxable years ending on or before the day on which the Effective Time occurs
is in process, provided that the provisions of this Section 5.02 shall not
terminate until such time as any Tax Claims (as defined in the Tax Matters
Agreement) relating to such audit or contest have been settled and all
liabilities related thereto satisfied.
See "Risk Factors" and "The Merger-Indemnification Matters; Escrow;
Appointment of AHC as Representative" in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G.
Terms of the Escrow Agreement
Deposit of Escrowed Property
BMS (on behalf of itself and the Surviving Corporation, OPUS, OTNC and
OTN), AHC, (on its own behalf and as representative of the 81% AHC Subsidiaries
and the Former Axion Stockholders), OPUS Sub, each other 81% AHC Subsidiary
other than OPUS Sub, the Former Axion Stockholders and [ ] (the "Escrow Agent")
will enter into an Escrow Agreement, the form of which is attached as Appendix E
to the Proxy Statement/Prospectus to which this Information Statement is
attached as Appendix G and is incorporated herein by reference (as it may be
amended, supplemented or otherwise modified from time to time, the "Escrow
Agreement"). Pursuant to the Escrow Agreement, (a) BMS' exchange agent (the
"Exchange Agent"), on behalf of the Former Axion Stockholders, will deposit into
escrow, and the Escrow Agent will acknowledge receipt of, a number of shares of
BMS Common Stock equal to $5,000,000 divided by the Average Value of BMS Common
Stock, rounded to the nearest whole share, which amount will be deemed to have
been deposited by the Former Axion Stockholders on a pro rata basis from the
shares of BMS Common Stock to be issued and delivered to each Former Axion
Stockholder with respect to its shares of Axion Common Stock pursuant to the
Merger Agreement as described under "The Merger", calculated based on the ratio
of the number of shares of BMS Common Stock to be so issued and delivered to
such Former Axion Stockholder with respect to its shares of Axion Common Stock
to the aggregate number of shares of BMS Common Stock to be so issued to all the
Former Axion Stockholders with respect to their shares of Axion Common Stock.
Such shares together with any dividends and distributions with respect to such
shares as set forth in the Merger Agreement and any income received from the
investment thereof, as on deposit or invested from time to time in accordance
with the terms of the Escrow Agreement are referred to as the "Escrowed Shares",
and (b) AHC will deposit, or cause to be deposited into escrow, and the Escrow
Agent will acknowledge receipt of, $5,000,000 in cash. Such cash, together with
any income received thereon, as on deposit or invested from time to time in
accordance with the terms of the Escrow Agreement, is referred to as the
"Escrowed Cash" (the Escrowed Shares and the Escrowed Cash together being the
"Escrowed Property"). During the term of the Escrow Agreement, BMS will, from
time to time and concurrently with the payment thereof, (a) deliver to the
Escrow Agent for deposit in accordance with the terms of the Indemnification
Agreement, all non-taxable stock dividends and other non-taxable distributions
made with respect to the Escrowed Shares and (b) deliver to the Escrow Agent,
who will promptly distribute the same to the Former Axion Stockholders, all cash
distributions and other taxable distributions (other than taxable distributions
representing the proceeds of a sale or acquisition or a substantial
restructuring in connection with a sale or acquisition of only BMS) made with
respect to the Escrowed Shares BMS and each AHC Indemnifying Party acknowledge
and agree that, to the extent and so long as any of the Escrowed Property is
held by the Escrow Agent hereunder, BMS shall have, as of and from the date such
Escrowed Property is received by the Escrow Agent, a perfected first priority
security interest in such Escrowed Property to secure the payment of the amount,
if any, payable by an AHC Indemnifying Party pursuant to the Indemnification
Agreement and the Tax Matters Agreement. Each of BMS and each of the AHC
Indemnifying Parties agree that the Escrowed Shares will be voted by the Escrow
Agent with respect to all matters as to which the holders of BMS Common Stock
are entitled to vote in accordance with written instructions from AHC as the
representative of the Former Axion Stockholders AHC agrees that if any Former
Axion Stockholder provides AHC
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with written directions as to how to vote the Escrowed Shares with respect to
any matter, AHC will instruct the Escrow Agent to vote such number of Escrowed
Shares as are beneficially held for such Former Axion Stockholder as so directed
by such Former Axion Stockholder, and if no such directions are received with
respect to particular Escrowed Shares on any matter for which such Escrowed
Shares may be voted, AHC will direct the Escrow Agent to abstain from voting
such Escrowed Shares with respect to such matter.
Disposition of Escrowed Property
At any time on or prior to the Escrowed Cash Termination Date (as defined
below), BMS may deliver a certificate to the Escrow Agent requesting delivery of
Escrowed Property to BMS, and the Escrow Agent will deliver the Escrowed
Property to BMS to the extent and at the time provided in accordance with the
Escrow Agreement; provided, however, that (i) no distribution of Escrowed
Property will be made in respect of any Indemnified Obligation (as defined
below) related to a liability for Taxes for which a BMS Indemnified Party is
indemnified pursuant to Section 1 of the Tax Matters Agreement unless and until
such time as such liability for Taxes will be deemed liquidated and therefore
payable in accordance with the provisions of Section 9 of the Tax Matters
Agreement. "Indemnified Obligation" includes an Indemnified Loss a BMS
Indemnified Party has incurred against which such BMS Indemnified Party is
entitled to be indemnified pursuant to the Indemnification Agreement or Taxes a
BMS Indemnified Party is liable for against which such BMS Indemnified Party is
entitled to be indemnified pursuant to the Tax Matters Agreement (ii) after the
Escrowed Shares Termination Date (as defined herein), no Escrowed Shares shall
be released to BMS except with respect to an Escrowed Shares Pending Claim (as
defined herein) and (iii) after the Second Anniversary Date (as defined herein),
Second Anniversary Cash shall be released to BMS only with respect to Second
Anniversary Pending Claims (as defined herein). For purposes of the foregoing,
the amount of Second Anniversary Cash as of any date shall equal the excess, if
any, of the amount of Escrowed Cash on deposit with the Escrow Agent on such
date over the amount specified in clause (A) of the definition of "Retained
Escrow Amount" (as defined herein) calculated as of such date.
Immediately following the Escrowed Shares Termination Date (as defined
below), if either (a) both BMS and AHC deliver a certificate to the Escrow Agent
or (b) the Escrow Agent (i) receives a certificate from AHC, (ii) delivers a
copy of such certificate to BMS and (iii) does not, within 15 business days
following delivery of such certificate to BMS, receive written notice from BMS
objecting to such certificate given by AHC, the Escrow Agent will deliver to AHC
as the representative of the Former Axion Stockholders such number of Escrowed
Shares (rounded to the nearest whole share) that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the Escrowed Shares
Termination Date multiplied by the Average Value of BMS Common Stock over (y)
the amount of any unpaid Escrowed Stock Pending Claims (as defined below) on the
Escrowed Shares Termination Date. Thereafter, if as of the last day of any
fiscal quarter following the Escrowed Shares Termination Date, Escrowed Shares
remain on deposit with the Escrow Agent, and either (a) both BMS and AHC deliver
a certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC as the representative of the Former Axion
Stockholders the number of Escrowed Shares that equals, when multiplied by the
Average Value of BMS Common Stock, the excess, if any, of (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the last day of such fiscal
quarter multiplied by the Average Value of BMS Common Stock over (y) the amount
of any unpaid Escrowed Shares Pending Claims on the last day of such fiscal
quarter. "Escrowed Stock Pending Claims" means all Pending Claims (as defined
below) existing on the Escrowed Shares Termination Date. The amount of any
Escrowed Shares Pending Claim on any date will be determined in accordance with
the provisions of the Escrow Agreement. "Escrowed Shares Termination Date" means
the earlier to occur of (i) one year after the date of the Escrow Agreement and
(ii) complete distribution of the Escrowed Shares in satisfaction of claims for
Indemnified Obligations.
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Immediately following the second anniversary of the date of the Escrow
Agreement (the "Second Anniversary Date"), if either (a) both BMS and AHC
jointly deliver a certificate to the Escrow Agent or (b) the Escrow Agent (i)
receives a certificate from AHC, (ii) delivers a copy of such certificate to BMS
and (iii) does not, within 15 business days following delivery of such
certificate to BMS, receive written notice from BMS objecting to the certificate
given by AHC, the Escrow Agent will deliver to AHC an amount in cash equal to
the excess, if any, of Escrowed Cash on deposit with the Escrow Agent as of the
Second Anniversary Date over the Retained Escrow Amount on the Second
Anniversary Date. Thereafter, if as of the last day of any fiscal quarter
following the Second Anniversary Date, Escrowed Shares Cash remains on deposit
with the Escrow Agent and either (a) both BMS and AHC deliver a certificate to
the Escrow Agent or (b) the Escrow Agent (i) receives a certificate from AHC,
(ii) delivers a copy of such certificate to BMS and (iii) does not, within 15
business days following delivery of such certificate to BMS, receive written
notice from BMS objecting to such certificate given by AHC, the Escrow Agent
will deliver to AHC an amount in cash equal to the excess, if any, of Escrowed
Cash on deposit with the Escrow Agent as of the last day of such fiscal quarter
over the Retained Escrow Amount as of the last day of such fiscal quarter.
"Retained Escrow Amount" means, as of any date, the sum of (i) an amount, if
any, equal to the excess of $1,000,000 over the aggregate amount, if any, of
Escrowed Cash that shall have been released during the period from the Second
Anniversary Date to such date in respect of any Pending Claim that was not an
existing Pending Claim at any time on or prior to the Second Anniversary Date
and (ii) the amount, if any, released to AHC pursuant to the paragraph below
from and after the Escrowed Cash Termination Date and (B) plus the amount of any
unpaid Second Anniversary Pending Claims on such date. "Second Anniversary
Pending Claims" means all the Pending Claims existing on the Second Anniversary
Date (and, for the avoidance of doubt, includes all Escrowed Shares Pending
Claims existing on such date). The amount of any Second Anniversary Pending
Claim on any date will be determined as provided in the Escrow Agreement,
provided that, for all purposes of this paragraph, the amount of unpaid Second
Anniversary Pending Claims on the last day of any fiscal quarter ending after
the Second Anniversary Date will be reduced by an amount equal to (x) the number
of Escrowed Shares on deposit with the Escrow Agent on the last day of such
fiscal quarter (such number to be determined based on the assumption that any
Escrowed Shares that are to be delivered to AHC as the representative of the
Former AHC Stockholders in respect of the last day of such fiscal quarter as
provided in the second sentence of the paragraph above will have been so
delivered and will not be on deposit with the Escrow Agent on the last day of
such fiscal quarter), if any, multiplied by (y) the Average Value of BMS Common
Stock.
Immediately following the Escrowed Cash Termination Date, if either (a)
both BMS and AHC deliver a certificate to the Escrow Agent or (b) the Escrow
Agent (i) receives a certificate from AHC, (ii) delivers a copy of such
certificate to BMS and (iii) does not, within 15 business days following
delivery of such certificate to BMS, receive written notice from BMS objecting
to such certificate given by AHC, the Escrow Agent will deliver to AHC an amount
equal to the excess, if any, of Escrowed Cash on deposit with the Escrow Agent
as of the Escrowed Cash Termination Date (calculated as provided below) over an
amount equal to any unpaid Final Pending Claims (as defined below) on the
Escrowed Cash Termination Date. Thereafter, if as of the last day of any fiscal
quarter following the Escrowed Cash Termination Date Escrowed Cash remains on
deposit with the Escrow Agent and either (a) both BMS and AHC deliver a
certificate to the Escrow Agent or (b) the Escrow Agent (i) receives a
certificate from AHC, (ii) delivers a copy of such certificate to BMS and (iii)
does not, within 15 business days following delivery of such certificate to BMS,
receive written notice from BMS objecting to such certificate given by AHC, the
Escrow Agent will deliver to AHC an amount equal to the excess, if any, of
Escrowed Cash on deposit with the Escrow Agent as of the last day of such fiscal
quarter over an amount equal to any unpaid Final Pending Claims on the last day
of such fiscal quarter. For purposes of this paragraph, the amount of any
Escrowed Cash on deposit with the Escrow Agent will be calculated by treating
the amount, if any, of Escrowed Cash that is to be delivered to AHC pursuant to
the paragraph above on such date as having been so delivered and as not being on
deposit with the Escrow Agent on such date. "Final Pending Claims" means all
Pending Claims existing on the Escrowed Cash Termination Date (and, for the
avoidance of doubt, includes all Escrowed Shares Pending Claims and Second
Anniversary Pending Claims existing on such date). The amount of any Final
Pending Claim on any date will be determined as provided in the Escrow
Agreement, provided that, for purposes of this paragraph the amount of unpaid
Final Pending Claims on the last day of any fiscal quarter ending after the
Escrowed Cash
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Termination Date will be reduced by an amount equal to (x) the number of
Escrowed Shares on deposit with the Escrow Agent on the last day of such fiscal
quarter (such number to be determined based on the assumption that any Escrowed
Shares that are to be delivered to AHC as the representative of the Former AHC
Stockholders in respect of the last day of such fiscal quarter is provided in
the second sentence of the second paragraph of "--Disposition of Escrowed
Property" above will have been so delivered and will not be on deposit with the
Escrow Agent on the last day of such fiscal quarter), if any, multiplied by (y)
the Average Value of BMS Common Stock. The "Escrowed Cash Termination Date"
means the earlier to occur of (i) six years after the date of the Escrow
Agreement and (ii) complete distribution of the escrowed cash in satisfaction of
claims for Indemnified Obligations.
Either BMS or AHC may deliver to the Escrow Agent a certificate accompanied
by a final and nonappealable award or order of a court of competent jurisdiction
(a "Court Order") with respect to the payment of all or any portion of the
Escrowed Property requesting delivery of Escrowed Property to BMS, AHC or such
other person(s) as may be specified in such award or order. Such certificate
also will be accompanied by an opinion of outside counsel to the effect that the
applicable court award or order is final and nonappealable. In either such case,
the Escrow Agent will deliver all or a portion of the Escrowed Property to BMS
or AHC, as the case may be, in the amount specified in the Court Order.
If AHC has delivered to the Escrow Agent and BMS at any time within 30 days
before or after the due date (including extensions) for payment by AHC of its
final Federal income tax liability for a taxable year (or, if later, 30 days
after the Escrow Agent supplies all information relating to the income realized
with respect to the Escrowed Cash necessary to prepare the certificate referred
to in this paragraph a certificate setting forth the amount of Federal and State
of California income tax due from AHC with respect to any taxable income
realized with respect to the Escrowed Cash for such taxable year (based on the
assumption that AHC is, with respect to such income, subject to Federal and
State of California income tax at the highest regular marginal tax rate
applicable to corporations for such year), and the accuracy and completeness of
such certificate is certified by Ernst & Young or such other nationally
recognized accounting firm chosen by AHC and reasonably satisfactory to BMS,
then the Escrow Agent will pay to AHC in cash the amount set forth in such
Certificate no more than fifteen days after receipt of such Certificate. The
Escrow Agent will use commercially reasonable efforts to supply to AHC the tax
information referred to above prior to the start of the 60-day period referred
to above.
All distributions under the Escrow Agreement that are not the subject of a
dispute will be made no later than 20 days from receipt of a certificate and
will be made from the Escrowed Shares and/or the Escrowed Cash, as the case may
be, in accordance with the provisions described above. Distributions made to BMS
pursuant to the provisions described above will first be made from any Escrowed
Shares on deposit and then, to the extent so required, from any Escrowed Cash.
Distributions made pursuant to the preceding paragraph will be deemed to have
been made from the Escrowed Cash.
Distributions for Indemnified Obligations
At any time on or prior to the Escrowed Cash Termination Date, BMS may
deliver to the Escrow Agent a certificate (i) stating that (A) a BMS Indemnified
Party has incurred an Indemnifiable Loss against which such BMS Indemnified
Party is entitled to be indemnified pursuant to the Indemnification Agreement or
(B) a BMS Indemnified Party is liable for Taxes against which such BMS
Indemnified Party is entitled to be indemnified pursuant to the Tax Matters
Agreement (each, an "Indemnified Obligation"), (ii) stating the aggregate amount
of such Indemnified Obligation (or, in the case of an unliquidated Indemnified
Obligation, a good faith and reasonable estimate thereof) and (iii) specifying
in reasonable detail the nature of each item included in such Indemnified
Obligation (an "Indemnification Item"), the amount thereof and the date on which
such Indemnification Item was paid or incurred; provided, however, that BMS may
not deliver to the Escrow Agent a certificate stating that a BMS Indemnified
Party is liable for Taxes against which such BMS Indemnified Party is entitled
to be indemnified pursuant to the Tax Matters Agreement unless and until any of
the following will have occurred: (a) a Tax Return will have been filed as
provided in the Tax Matters Agreement showing such Taxes to be due and payable
and the
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full amount of such Taxes will not have been paid at the time such Tax Return
was filed; (b) a Taxing Authority will have asserted in writing or determined
that there is a deficiency with respect to such Taxes; (c) except with respect
to any claim for indemnification for Taxes relating in any respect to (i) the
Contributions, the Distribution, the Merger or any of the other Transactions,
(ii) any sales or use Taxes, other than (A) Pre-JV Sales Taxes, (B) JV Sales
Taxes and (C) any liability of any BMS Indemnified Party with respect to unpaid
sales and use taxes on rentals of OPUS Station machines, and (iii) the
distribution of the stock of OnCare by Axion, BMS will have received an opinion
of a nationally recognized accounting firm or law firm reasonably acceptable to
AHC that it is more likely than not that such Taxes will be properly payable; or
(d) there will have been a "determination" (as defined in Section 1313 of the
Code) that such Taxes are due and payable.
If AHC objects to the Indemnified Obligation specified in such certificate,
AHC will, within 10 business days after delivery of the written notice
containing a copy of any such Certificate, deliver to the Escrow Agent a
certificate (a "Reply Certificate"), (i) specifying each such amount to which
AHC objects and (ii) specifying in reasonable detail the nature and basis for
each such objection. Within five business days of delivery to the Escrow Agent
of a Reply Certificate, the Escrow Agent will deliver a copy of such Reply
Certificate to BMS. BMS and AHC will negotiate in good faith for a period of 30
days after delivery of such Reply Certificate to BMS to reach a written
resolution of any matters raised in a Reply Certificate.
If no Reply Certificate is delivered with respect to any certificate or any
Indemnification Item contained therein, then AHC will be deemed to have
acknowledged BMS's right to receive any amount or amounts specified in such
certificate (or the undisputed portion thereof), and the Escrow Agent will
transfer to BMS, Escrowed Property in an amount equal to the undisputed amount
claimed in such certificate (plus interest at a rate per annum equal to the
prime rate announced from time to time by The Chase Manhattan Bank on such
amount from the later of (i) the date of such certificate and (ii) the date such
indemnified amount was actually incurred by the applicable Indemnified Party),
all in accordance with the procedures set forth in the Escrow Agreement.
If the Escrow Agent receives a Reply Certificate in a timely manner, the
disputed amount requested for reimbursement pursuant to the applicable
certificate will be held by the Escrow Agent and will not be released to BMS
except in accordance with either (i) written instructions signed by each of an
authorized officer of BMS and AHC or (ii) the final nonappealable judgment of a
court having jurisdiction over the matters relating to the claim by the
applicable Indemnified Party for indemnification from AHC accompanied by an
opinion of outside counsel to the effect that the applicable judgment is final
and nonappealable, at which date the portion of the amount due to such
Indemnified Party determined pursuant to clauses (i) or (ii) in this paragraph
will promptly be paid to BMS in accordance with the procedures set forth in the
Escrow Agreement.
The parties hereto agree that the payment of Indemnified Obligations
contemplated by the Escrow Agreement is not, and will not be deemed to be, a
waiver of any right, claim or amount to which BMS may be entitled under the
Indemnification Agreement, the Tax Matters Agreement or otherwise, including any
claim relating to an Indemnified Obligation, to the extent that the amount paid
to BMS pursuant hereto is insufficient to satisfy the entire amount of any such
Indemnified Obligation.
Notwithstanding anything to the contrary set forth in "--Disposition of
Escrowed Property" and "--Distributions for Indemnified Obligations", upon
receipt of written notice from the Escrow Agent containing a copy of a
certificate relating to an Indemnified Obligation the final amount of which will
have been liquidated, AHC may elect to pay to BMS such amount in cash in lieu of
payment being made from the Escrowed Property if AHC, within ten business days
after delivery of the written notice containing a copy of the certificate, will
have delivered to BMS and the Escrow Agent a written notice stating its election
to make such cash payment and, thereafter, will have made such cash payment to
BMS on the earliest date that a payment of Escrowed Property would otherwise be
made hereunder with respect to such Indemnified Obligation; provided, however,
that such Indemnified Obligation will constitute a Pending Claim for all
purposes of this Agreement until the time the full amount of such cash payment
is actually received by BMS.
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Pending Claims
"Pending Claims" means, at any time, (a) all indemnification claims with
respect to which a certificate will have been delivered at or prior to such time
with respect to which the final amount of such claims will have been liquidated
and which will not have been paid in full at such time whether because the
payment of such amount is in dispute or otherwise and (b) all indemnification
claims with respect to which a Certificate will have been delivered and with
respect to which the final amount of such claim will not have been liquidated.
The amount of any Pending Claim as of any date will be equal to BMS's
reasonable estimate of such amount. If any Pending Claim exists on the last day
of any fiscal quarter during the term of the Escrow Agreement, not later than 10
business days after the last day of such fiscal quarter, BMS will deliver to the
Escrow Agent a certificate (a "Quarterly Certificate") setting forth BMS's
reasonable estimate of the amount of each then existing Pending Claim as of the
last day of such fiscal quarter, provided that, if BMS will not deliver a
Quarterly Certificate in respect of any fiscal quarter or will not include in
such Quarterly Certificate all Pending Claims existing on the last day of such
fiscal quarter, the amount of each Pending Claim (or the amount of any Pending
Claim not included in such Quarterly Certificate, as applicable) will be the
amount of each such Pending Claim set forth in the most recent Certificate
(including any Quarterly Certificate) delivered by BMS to the Escrow Agent in
respect of the amount of such Pending Claim, provided further that failure of
BMS to deliver a Quarterly Certificate in respect of any fiscal quarter will not
affect in any manner the obligations of the AHC Indemnifying Parties under the
Escrow Agreement, the Indemnification Agreement or the Tax Matters Agreement or
the rights of BMS or any other BMS Indemnified Party thereunder.
If AHC reasonably objects to the amount of any Pending Claim specified in
any certificate delivered pursuant to the Escrow Agreement, AHC will, within 10
business days after delivery of such certificate, deliver to the Escrow Agent a
certificate (the "Amount Certificate"), (i) specifying each such amount to which
AHC reasonably objects and (ii) specifying in reasonable detail the nature and
basis for each such objection. Within five business days of delivery to the
Escrow Agent of the Amount Certificate, the Escrow Agent will deliver a copy of
such Amount Certificate to BMS. BMS and AHC will negotiate in good faith for a
period of 30 days after delivery by the Escrow Agent to BMS of such Amount
Certificate to reach a written resolution of any matters raised in the Amount
Certificate and, if such matters are not resolved within a 30-day period, either
party may bring an action to resolve such dispute as provided in the Escrow
Agreement. Notwithstanding the foregoing, the amount of any Pending Claim with
respect to which an Amount Certificate will have been delivered will be for all
purposes of the Escrow Agreement the amount reasonably determined by BMS as
provided in the paragraph above unless and until such time as the Escrow Agent
either (a) receives written instructions signed by an authorized officer of each
of BMS and AHC adjusting the amount of such Pending Claim or (b) the final
nonappealable judgment of a court having jurisdiction over the matters relating
to the claim by the applicable BMS Indemnified Party for indemnification from
any AHC Indemnifying Party adjusting the amount of such Pending Claim
accompanied by an opinion of outside counsel to the effect that the applicable
judgment is final and nonappealable, at which date, in the event that the Escrow
Agent will have received an Amount Certificate from AHC within the time frame
set forth above, the amount of the Pending Claim for all purposes of this
Agreement will be adjusted to the amount determined pursuant to clauses (a) or
(b) of this sentence.
See "Risk Factors" and "The Merger-Indemnification Matters; Escrow;
Appointment of AHC as Representative" in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G.
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Terms of the Tax Matters Agreement
BMS, BMS Sub, Axion, certain subsidiaries of Axion, AHC, certain
subsidiaries of AHC and each of the Former Axion Stockholders will enter into a
Tax Matters Agreement, the form of which is attached as Appendix D to the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G and is incorporated herein by reference (as it may be amended, supplemented or
otherwise modified from time to time, the "Tax Matters Agreement") sets forth
each party's rights and obligations with respect to payments of Federal, state,
local or foreign Taxes for periods before and after the Merger and related
matters such as the filing of and right to tax returns and the control of tax
contests.
The Tax Matters Agreement specifically provides that: AHC, the 81% AHC
Subsidiaries and the Former Stockholders of Axion (collectively, the "AHC
Indemnifying Parties") will jointly and severally indemnify and hold harmless
BMS, the Surviving Corporation, OPUS, OTNC, the Partnership, their affiliates
and each of their respective officers, directors, employees, stockholders,
agents and representatives (collectively, the "BMS Indemnified Parties") from
all liabilities for Federal, state, local, foreign and other governmental taxes,
assessments, duties, fees, levies or similar charges of any kind including all
interest, penalties and additions imposed with respect to such amounts
(collectively, "Taxes") imposed on Axion, OPUS, OTNC or any member of Affiliated
Group (whether imposed directly or by reason of United States Treasury
Regulations Section 1.1502-76 or similar provisions) (i) for any pre-merger tax
period, including any (but excluding Pre-JV Sales Taxes Liabilities), which are
in each case unpaid as of the Effective Time (the "Pre-Merger Taxes") (ii) with
respect to the Contributions, (iii) as a result of the Distribution, (iv) as a
result of the provision of the OPUS Station Data (as defined in the Distribution
Agreement) to AHC, OnCare or any of their assignees, (v) with respect to the
OPUS License Agreement or (vi) in respect of the transfer of assets or rights
from OnCare or any of its subsidiaries or affiliates or any other affiliate of
Axion and its subsidiaries to Axion prior to the Distribution. The AHC
Indemnifying Parties shall also jointly and severally indemnify the BMS
Indemnified Parties from all liabilities for fifty percent (50%) of the excess
of (I) any liability for any unpaid Taxes (other than JV Sales Taxes) as of June
30, 1996 imposed on the Partnership for all periods up to and including June 30,
1996 over (II) $225,000, and 100% of any liability for JV Sales Taxes paid after
June 30, 1996 in excess of $667,402; provided, however, that no indemnification
shall be payable with respect to any JV Sales Taxes to the extent payment of
such JV Sales Taxes increased the amount of "Retained Cash" pursuant to clause
(c) of the definition of "Retained Cash" in the Distribution Agreement.
"Retained Tax Liabilities" shall mean (W) any income Tax liability (including
any liability for any Tax measured by reference to income) of OTNC (or the
Affiliated Group) attributable to the allocation to OTNC of Taxable income of
the Partnership (whether or not such taxes are paid before or after the
Effective Time) and any other Taxes to the extent directly attributable to the
operation of the Partnership, in each case for the period beginning on July 1,
1996, and ending on the day on which the Effective Time occurs and in each case
determined in accordance with certain principles provided therein and (further
evidence of doubt), in the case of taxes measured by reference to income, by
assuming that such income is subject to tax at the applicable federal, state,
and local tax rating otherwise provided therein, (X) any income Tax liability
(including any liability for any Tax measured by reference to income) to the
extent directly attributable to the reallocation of Partnership income by the
IRS or any other governmental agency from Bristol-Myers Oncology Therapeutics
Network Inc., a Delaware corporation and a wholly owned subsidiary of BMS
("BMOTN") to OTNC, (Y) all liabilities for any unpaid Taxes as of June 30, 1996
imposed on the Partnership for all periods up to and including June 30, 1996
that are not indemnified by the AHC Indemnifying Parties pursuant to the
preceding sentence, and (Z) any Tax liabilities relating to the operations,
assets or activities of a BMS Entity (other than the Partnership). "Pre-JV Sales
Taxes" shall mean any liability of Axion with respect to unpaid sales and use
Taxes on sales prior to the date of formation of the Partnership. "JV Sales
Taxes" shall mean any liability of the Partnership with respect to unpaid sales
and use Taxes on sales prior to September 1, 1994.
BMS, Axion, OTNC, OPUS and the Partnership (collectively, the "BMS
Indemnifying Parties") shall jointly and severally indemnify and hold harmless
AHC, the Subsidiaries, their affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives (collectively,
the "Axion
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Indemnified Parties") (A) from all liability for Taxes imposed on Axion, OTNC,
OPUS or the Partnership for any Post-Merger Tax Period and (B) for any Retained
Tax Liabilities.
Other provisions of the Tax Matters Agreement provide AHC with the ability,
under certain circumstances, to control tax contests relating to a claim for
which AHC would indemnify the BMS Indemnified Parties and, under certain
circumstances, allow AHC to obtain refunds for taxes paid by Axion prior to the
Effective Time, up to a certain threshold.
See "Risk Factors" and "The Merger--Indemnification Matters; Escrow;
Appointment of AHC as Representative" in the Proxy Statement/Prospectus to which
this Information Statement is attached as Appendix G.
Certain Federal Income Tax Consequences
The following summary describes the material federal income tax
consequences of the Distribution and the Merger to holders of Axion Common Stock
who are citizens or residents of the United States. This discussion does not
consider all the tax consequences that may be relevant to Axion stockholders
entitled to special treatment under the Code (such as insurance companies,
dealers in securities, tax exempt organizations or, except as specifically
provided below, foreign persons) or to Axion stockholders who acquired their
shares of Axion Common Stock pursuant to the exercise of employee stock options
or otherwise in compensatory transactions. In addition, this discussion does not
address any state, local or foreign tax considerations nor does it address any
federal estate, gift, employment, excise or other non-income tax consideration.
The following discussion is based upon provisions of the Code, regulations,
administrative rulings and judicial decisions presently in effect, all of which
are subject to change (possibly with retroactive effect) or to different
interpretations. ALL AXION STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE DISTRIBUTION,
INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
In the opinion of Ernst & Young, Axion's public accountants, based upon
certain representations of BMS, BMS Sub, Axion, AHC and certain Former Axion
Stockholders of Axion, the Distribution should qualify as a tax-free spin-off
under Section 355 of the Code. In such event, the following consequences would
obtain:
1. An Axion stockholder should not recognize any income, gain or loss as a
result of the Distribution.
2. An Axion stockholder should apportion the tax basis of his or her Axion
Common Stock between such Axion Common Stock and AHC Preferred Stock received in
the distribution in proportion to the relative fair market values of such Axion
Common Stock and AHC Preferred Stock immediately following the Distribution.
3. An Axion stockholder's holding period for the AHC Preferred Stock
received in the Distribution should include the period during which such
stockholder held Axion Common Stock with respect to which the Distribution was
made, provided that such Axion Common Stock is held as a capital asset by such
stockholder as of the date of the Distribution.
4. Under current law, no gain or loss should be recognized by Axion as a
result of the Distribution. It should be noted, however, that legislation (the
"Proposed Legislation") has been proposed that would cause the Distribution to
constitute a taxable event to Axion whereby Axion would recognize gain in an
amount equal to the excess of the value of the AHC Preferred Stock distributed
over Axion's tax basis in such stock. While the Proposed Legislation has not yet
been enacted into law, as currently drafted such legislation would, if enacted,
apply retroactively to the Distribution. Based on an appraisal by Ernst & Young
of the value of the businesses to
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be distributed by Axion in the Distribution, Axion does not expect that it would
incur a material amount of tax liability even if the Proposed Legislation were
adopted with an effective date that applied to the Distribution. There can be no
assurance, however, that the IRS will agree with such valuations, and,
accordingly, that adoption of the Proposed Legislation would not cause Axion to
incur a material amount of tax liability. Pursuant to the Tax Matters Agreement,
the AHC Indemnifying Parties have agreed to indemnify the BMS Indemnified
Parties against such tax liability. Regardless of whether the Proposed
Legislation is adopted, Axion and/or its subsidiaries may also be required to
recognize gain as a result of the transfer of various assets and liabilities
among such entities in anticipation of the Distribution.
No ruling from the IRS has been or will be sought with respect to any of
the tax matters relating to the Distribution. The opinion of Ernst & Young
described above will not be binding on the IRS. In addition, Axion stockholders
should be aware that such opinion is based on Ernst & Young's interpretation as
to how various requirements of Code Section 355 should apply to the particular
facts presented by the Distribution. With respect to some of these
interpretations, no direct legal precedents exist. Accordingly, there can be no
assurance that the IRS will agree with the conclusions set forth in the Ernst &
Young opinion. Moreover, no published rulings or cases squarely address the
qualifications of a transaction identical to the Distribution under Section 355
of the Code.
A successful IRS challenge to the qualification of the Distribution as a
tax-free spinoff qualifying under Section 355 of the Code (as a result of the
inaccuracy of any of the representations of BMS, BMS Sub, Axion, AHC or certain
Former Axion Stockholders, or otherwise) would result in the following
consequences:
1. Axion would recognize gain in an amount equal to the excess of the value
of the AHC Preferred Stock distributed over Axion's tax basis in such stock.
Axion does not expect that it would incur a material amount of tax liability. As
noted above, Axion and/or its subsidiaries may also be required to recognize
gain as a result of the transfer of various assets and liabilities among such
entities in anticipation of the Distribution, regardless of whether the
Distribution qualifies as a tax-free spinoff.
2. The receipt of AHC Preferred Stock would constitute a taxable
distribution to Axion stockholders so that the fair market value of the AHC
Preferred Stock received by an Axion stockholder would be treated (i) first, as
a dividend to the extent of such Axion stockholder's share of Axion's current
and accumulated earnings and profits, (ii) next, as a tax-free return of capital
to the extent of such stockholder's tax basis in the Axion Common Stock with
respect to which the AHC Preferred Stock is distributed (as determined, for
Axion stockholders who hold two or more blocks of stock with different bases, on
a block-by-block approach rather than by aggregating the bases of all blocks of
stock held by each Axion stockholder) and (iii) finally, as gain from the sale
of Axion Common Stock.
3. An Axion stockholder's aggregate basis in the shares of AHC Preferred
Stock received in the exchange would equal the fair market value of such shares,
and the stockholder's holding period for such AHC Preferred Stock would not
include the period during which the shares of Axion Stock were held.
Under the Tax Matters Agreement, the Axion Indemnifying Parties have agreed
to indemnify the BMS Indemnified Parties against any tax liability arising from
the failure of the Distribution to qualify as a tax-free spinoff under Section
355 of the Code. See "The Distribution--Terms of the Tax Matters Agreement".
The foregoing summary sets forth the material Federal income tax
consequences of the Distribution and the Merger and is included herein for
general information only. Such opinions are based in part on representations
provided by Axion and BMS. The summary does not address the Federal income tax
consequences to all categories of Axion stockholders, including those who
acquired shares of Axion Common Stock pursuant to the exercise of stock options
or otherwise in compensatory transactions as compensation. EACH AXION
STOCKHOLDER IS URGED TO CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX
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CONSEQUENCES TO HIM OR HER OF THE DISTRIBUTION AND THE MERGER, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
RELATIONSHIP WITH BMS
Following the Merger, AHC will continue to have certain relationships with
BMS and its subsidiaries.
Indemnification Agreement; Escrow Agreement; Tax Matters Agreement
AHC and certain of its subsidiaries and BMS and certain of its subsidiaries
will be parties to the Indemnification Agreement, the Tax Matters Agreement and
the Escrow Agreement. See "The Distribution--Terms of the Indemnification
Agreement"; "--Terms of the Tax Matters Agreement"; and "--Terms of the Escrow
Agreement".
Noncompetition Agreements
BMS will enter into separate Noncompetition Agreements with AHC and OnCare
and each of Michael D. Goldberg, the President and Chief Executive Officer of
Axion, OnCare and AHC and a director of Axion, and Garrett J. Roper, the Senior
Vice President and Chief Financial Officer of Axion, OnCare and AHC and the
Secretary of AHC (the "Noncompetition Agreements"). In the Noncompetition
Agreements, each of AHC, OnCare, Michael D. Goldberg and Garrett J. Roper will
agree that, for a period of two years following the Closing Date, neither they
nor their respective subsidiaries and affiliates, as the case may be, will have
any relationship with any entity which furnishes directly or indirectly engages
in the distribution of oncology drugs, supplies or biologics to certain
customers or the automated drug dispensing and inventory tracking systems to
office-based oncology practices business anywhere within the United States of
America. In addition, AHC will agree that neither AHC nor any of its
subsidiaries will solicit for employment or hire, whether as an employee,
consultant or otherwise, David A. Levison, President of OTN, during the term of
his employment agreement with Axion.
AHC Supply Agreement; OnCare Supply Agreement; AHC Medstation Agreement; OnCare
Medstation Agreement
AHC will enter into the AHC Supply Agreement (the "AHC Supply Agreement")
and OnCare will enter into the OnCare Supply Agreement (the "OnCare Supply
Agreement"). Pursuant to the AHC Supply Agreement and OnCare Supply Agreement
each of AHC and OnCare, respectively, will agree to purchase from OTN all the
products and supplies offered by OTN required by all oncology treatment
facilities that are either owned by AHC or OnCare, as the case may be, or any of
their respective subsidiaries or controlled affiliates, managed by AHC or
OnCare, as the case may be, or any of their respective subsidiaries or
controlled affiliates or which AHC or OnCare, as the case may be, or any of
their respective subsidiaries or controlled affiliates has the authority at the
discretion of the oncology treatment facility to purchase products or supplies.
In general OTN will agree to provide each of AHC and OnCare, respectively, the
lowest prices at which OTN sells such products or supplies to other oncology
physician management companies with the authority to make purchasing decisions
on behalf of physician office practices which have agreed to make purchase or
other commercial commitments equivalent to those agreed to by AHC or OnCare, as
the case may be, provided that in the event AHC or OnCare, as the case may be,
receives an offer pricing products or supplies at a price of at least 10% less
than the lowest price offered by OTN and OTN chooses not to match such lower
offer, AHC or OnCare, as the case may be, may purchase such products or supplies
for a term to end upon the later of 30 days after the receipt of such lower
offer and the term of such lower offer. The existing supply agreement between
OTN and OnCare will terminate on the Closing Date. Similar arrangements have
been made between each of AHC and OnCare and OTN Medstation pursuant to the AHC
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Medstation Agreement and the OnCare Medstation Agreement, respectively,
regarding the lease from OTN Medstation of oncology drug dispensing machines.
License Agreement
AHC and the Surviving Corporation will enter into a Trademark License
Agreement (the "License Agreement") pursuant to which AHC will grant an
exclusive, royalty-free license to the Surviving Corporation to use the "OPUS"
name in connection with the OPUS Station Business for a period of one year in
the U.S. The License Agreement also provides that Axion may use certain supplies
specified in the License Agreement for a period of not more than two month;
provided that Axion agrees to use commercially reasonable efforts to terminate
its use of the Axion Intellectual Property as soon as practicable following the
Effective Time.
Transitional Services Agreement
AHC and the Surviving Corporation will also enter into a Transitional
Services Agreement (the "Transitional Services Agreement"). In the Transitional
Services Agreement, AHC will agree to provide to Axion certain services,
including certain financial and information systems services, and Axion will
agree to provide to AHC certain services, including certain information systems
services and clinical trials logistic support. The services provided under the
Transitional Services Agreement will be performed for a period of three months
after the date thereof with renewals of one month upon the mutual consent of the
parties with such renewals not to exceed an aggregate of three months in
addition to the original term.
TRADING OF AHC COMMON STOCK
There is no existing trading market for AHC Preferred Stock. AHC has not
sought and does not intend to apply for listing of AHC Preferred Stock on a
securities exchange or seek approval for quotation through an automated
quotation system. There can be no assurance that any trading market will develop
for AHC Preferred Stock.
The AHC Preferred Stock received by Axion stockholders pursuant to the
Distribution will not be freely transferable under the Securities Act. In
addition, the Certificate of Incorporation will be amended prior to the
Distribution to provide for various restrictions on transfer of the AHC
Preferred Stock. Holders of AHC Preferred Stock will be permitted to sell their
AHC Preferred Stock received pursuant to the Distribution only pursuant to an
effective registration statement under the Securities Act or pursuant to an
exemption from registration, such as the exemptions afforded by Section 4(2) of
the Securities Act and Rule 144 thereunder. The stock certificates evidencing
the AHC Preferred Stock will bear legends referring to such restrictions.
CAPITALIZATION
The following table summarizes the combined capitalization of AHC and the
OPUS Matrix Business as of March 31, 1996 on a historical basis and also on a
pro forma basis. The pro forma presentation reflects: (i) the transfer by Axion
of certain assets, including all cash and cash equivalents and short-term
investments, the final distribution from the Partnership to Axion, and the
investment in redeemable preferred stock of OnCare, to AHC; (ii) reconstituting
the OPUS Matrix Business as a subsidiary of AHC; and (iii) the elimination of
non-interest bearing advances from Axion and affiliates, all as a contribution
to the capital of AHC. The pro forma presentation also reflects the
recapitalization of AHC in which 9,977,756 shares of preferred stock are to be
issued in exchange for and cancellation of the 1,000 shares of common stock
outstanding as of March 31, 1996.
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Pro Forma
Adjustments Pro
Historical Increase [Decrease] Forma
---------- ------------------- -----
Non-interest bearing advances
due parent and affiliates by:
AHC ......................... $ 878 (878) --
OPUS Matrix ................. 908 (908) --
-------- -------- --------
Combined .................... 1,786 (1,786)(d) --
Combined stockholders equity
(net capital deficiency):
AHC:
Preferred stock, $0.001 par
value, 5,000,000 shares
authorized, none issued and . -(a)
outstanding (9,977,756 ...... (865)(b)
shares issued and ........... 32,480 (c)
outstanding, pro forma) ..... -- 1,786 (d) 33,401
Common stock, $0.001 par
value, 15,000,000 shares
authorized, 1,000 shares
issued and outstanding (none
issued and outstanding,
pro forma) .................. -- -(a) --
Accumulated deficit ......... (1,166) (1,166)
-------- -------- --------
AHC net capital deficiency .. (1,166) 33,401 32,235
OPUS Matrix :
Accumulated deficit ......... (865) 865 (b) --
-------- -------- --------
Combined stockholders' equity
(net capital deficiency) ....... (2031) 34,266(a-d) 32,235
-------- -------- --------
Total capitalization (deficit) . $ (245) $ 32,480 $ 32,235
======== ======== ========
Pro forma adjustments:
(a) Recapitalization of AHC resulting in issuance of
9,977,756 shares of preferred stock for 1,000 shares
of common stock.......................................
(b) Reclassification of OPUS Matrix Business accumulated
deficit as adjustment to capital stock of AHC upon
reconstitution of OPUS Matrix as a subsidiary of AHC $ 865
===========
41
<PAGE>
<PAGE>
Pro Forma
Adjustments Pro
Historical Increase [Decrease] Forma
---------- ------------------- -----
(c) Transfer of the following assets by
Axion to AHC as a contribution to
capital of AHC:
i) Final cash distribution from
Axion's interest in the
Partnership.......................... $ 13,615
ii) Cash and cash equivalents and
short-term investments held by
Axion and other affiliated
entities at March 31, 1996........... 5,365
iii) Redemption value of 2,700,000
shares of Series A redeemable
preferred stock of OnCare
Inc.................................. 13,500
----------
$ 32,480
(d) Elimination of indebtedness due
Axion and subsidiaries as a
contribution to capital of
AHC....................................... $ 1,786
==========
42
<PAGE>
<PAGE> Report of Independent Auditors
The Board of Directors
Axion Inc.
We have audited the accompanying combined balance sheet of Axion HealthCare Inc.
(including OPUS Matrix) as of December 31, 1995, and the related combined
statements of operations and accumulated deficit and net capital deficiency and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Axion HealthCare Inc.
(including OPUS Matrix) at December 31, 1995, and the combined results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
March 22, 1996, except for Note 3
as to which the date is
August 2, 1996
<PAGE>
<PAGE>
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Combined Balance Sheets
(in thousands of dollars)
December 31, March 31,
1995 1996
--------------------------------
(Unaudited)
Assets
Current assets:
Cash $ 1 $ 1
Accounts receivable -- 66
Prepaid expenses and other 311 69
--------------------------------
Total current assets 312 136
Net property and equipment -- 354
--------------------------------
Total assets $ 312 $ 490
================================
Liabilities and net capital deficiency
Current liabilities:
Accounts payable $ 89 $ 425
Accrued liabilities 75 310
--------------------------------
Total current liabilities 164 735
Noninterest bearing advances due
parent and affiliates:
AHC 744 878
OPUS Matrix 828 908
--------------------------------
Total advances due parent and affiliates 1,572 1,786
Net capital deficiency:
AHC:
Preferred stock, $0.001 par value, 5,000,000
shares authorized, none issued -- --
Common stock, $0.001 par value,
15,000,000 shares authorized,
1,000 shares issued and outstanding -- --
Accumulated deficit (832) (1,166)
--------------------------------
AHC net capital deficiency (832) (1,166)
OPUS Matrix:
Accumulated deficit (592) (865)
--------------------------------
Total net capital deficiency (1,424) (2,031)
--------------------------------
Total liabilities and net capital deficiency $ 312 $ 490
================================
See accompanying notes
<PAGE>
<PAGE>
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Combined Statements of Operations
and Accumulated Deficit and Net Capital Deficiency
(in thousands of dollars)
Three months ended
Year ended March 31,
December 31, --------------------
1995 1995 1996
-------------------------------------
(Unaudited)
Net revenues $ 970 $ 127 $ 45
-------------------------------------
Cost and expenses:
Cost of revenues 292 79 28
General and administrative 2,965 825 1,026
-------------------------------------
Total costs and expenses 3,257 904 1,054
-------------------------------------
Loss before allocated income tax benefit (2,287) (777) (1,009)
Income tax benefit allocated from parent 863 310 402
-------------------------------------
Net loss (1,424) (467) (607)
Accumulated deficit and net capital
deficiency, beginning of period -- -- (1,424)
-------------------------------------
Accumulated deficit and net capital
deficiency, end of period $ (1,424) $ (467) $(2,031)
=====================================
See accompanying notes.
<PAGE>
<PAGE>
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Combined Statements of Cash Flow
(in thousands of dollars)
Three months ended
Year ended March 31,
December 31, ------------------
1995 1995 1996
---------------------------------
(Unaudited)
Operating activities
Net loss $ (1,424) $ (467) $ (607)
Adjustment to reconcile net loss to net
cash used in operating activities -
income tax benefit allocated from parent (863) (310) (402)
Changes in operating assets and liabilities:
Accounts receivable, prepaid expenses
and other (311) (895) 176
Accounts payable and accrued liabilities 164 243 571
---------------------------------
Net cash used in operating activities (2,434) (1429) (262)
Investing activities - purchases of
property and equipment -- -- (82)
Financing activities - amounts advanced
on noninterest basis by parent
and affiliates 2,435 1430 344
---------------------------------
Net increase in cash 1 1 --
Cash, beginning of period -- -- 1
---------------------------------
Cash and cash equivalents, end of period $ 1 $ 1 $ 1
=================================
Supplemental disclosure of noncash investing
activities - property and equipment
transferred from parent $ -- $ -- $ 272
=================================
See accompanying notes.
<PAGE>
<PAGE>
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
1. Formation, Ownership and Business
Axion HealthCare Inc. ("AHC") was incorporated in December 1994 as a wholly
owned subsidiary of Axion Inc. ("Axion"). Axion is a cancer-focused healthcare
service firm whose principal business is the distribution of oncology drugs and
related products to U.S. office-based oncologists. The pharmaceutical
distribution business is conducted through a partnership (the "Partnership")
with Bristol-Myers Squibb Company ("BMS").
AHC, formed in December 1994, provides cancer-specific managed care services to
cancer care payers and providers. AHC will provide services and information
tools specifically designed to assist in better managing cancer care from both a
clinical quality and cost standpoint. AHC is in the early stages of development
and has derived limited revenues to date from such services.
As described in Note 3, Axion and BMS have entered into an agreement and plan of
merger and, immediately prior thereto, Axion intends to distribute to its then
stockholders all of the outstanding shares of stock in AHC. Included among the
net assets and business of AHC at the date of distribution will be the net
assets of the OPUS Matrix business and the management information systems
operations (together "OPUS Matrix") of OPUS Health Systems Inc. ("OPUS"),
another subsidiary of Axion. OPUS Matrix is in the early stages of development
and has not derived any revenues to date.
2. Accounting Policies
Basis of Presentation
The accompanying financial statements include the combined accounts and
operating results of AHC and OPUS Matrix. From inception to date, AHC and OPUS
Matrix, as part of OPUS, have been subsidiaries of Axion. During that time,
Axion incurred certain expenses on behalf of AHC and OPUS Matrix. Allocated
charges for these expenses have been reflected in the combined financial
statements.
<PAGE>
<PAGE>
2
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
Unaudited Financial Statements
The financial statements at March 31, 1996 and for the three month periods ended
March 31, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenues
Revenues have been derived primarily from clinical outcome services and cancer
prevention studies, and such revenues are recognized as the services and studies
are provided. Revenues also include the sale of a software license, related to
software developed for use by OPUS Matrix.
Software Development
Under an agreement with Electronic Data Systems Corporation ("EDS"), OPUS
receives information technology services for its operations and also for
software development related to its OPUS Matrix product line. Under this
agreement, OPUS Matrix reflected $1,180 as part of general and administrative
costs in 1995. No further services are expected to be provided by EDS to OPUS
Matrix.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives, primarily five years. Leasehold
improvements are
<PAGE>
<PAGE>
3
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
amortized by the straight-line method over the estimated useful lives or the
lease term, whichever is less.
Income Taxes
The Company accounts for income taxes using the liability method. Using this
method, deferred tax liabilities and assets are to be recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
An income tax benefit has been recognized for the use in the consolidated tax
return of Axion of the 1995 operating loss.
3. Proposed Merger of Axion and BMS and Distribution of the Outstanding Stock
of AHC to Stockholders of Axion
On August 2, 1996, Axion and BMS signed an agreement and plan of merger, which
contemplates the merger of a newly formed wholly owned subsidiary of BMS into
Axion, with Axion being the surviving company. Holders of shares of Axion's
common stock at the consummation of the proposed merger would receive shares of
common stock of BMS having an aggregate value at $86,000 subject to a holdback
of shares of common stock of BMS having a value of $5,000. The $5,000 in shares
of common stock of BMS plus $5,000 in cash otherwise available to AHC will
constitute an escrow fund to secure indemnification obligations to BMS in the
event BMS were to suffer certain defined indemnifiable losses. Consummation of
the merger of Axion and the newly formed BMS subsidiary requires approval by the
holders of Axion's various classes of stock. Consummation also is conditioned
upon satisfactory completion of certain U.S. regulatory matters and certain
other conditions.
Immediately prior to consummation of the merger, Axion intends to distribute to
its then stockholders all of the outstanding shares of stock of AHC, which will
represent 100% ownership in AHC. Prior to that distribution, AHC will have
received from Axion, as a contribution to the capital of AHC, substantially all
of Axion's assets and liabilities other than those assets and liabilities
related to Axion's interest in the Partnership and the OPUS Station automated
drug dispensing business. Among the more significant assets to be transferred to
AHC by Axion will be: (i) a cash distribution from the Partnership
<PAGE>
<PAGE>
4
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
to Axion of $13,615, subject to adjustment in certain situations, and the
remainder of Axion's cash and cash equivalents and short-term investments
($5,365 at March 31, 1996); (ii) the shares of Series A redeemable preferred
stock of OnCare (2,700,000 shares with a redemption value and cost of $13,500);
and (iii) amounts due under loans extended those persons exercising Axion stock
options and warrants (none at March 31, 1996, but approximately $6,500 at that
date had substantially all of the options and warrants then outstanding been
exercised and loans extended for the full exercise price). None of those items
had been transferred to AHC as of March 31, 1996. None has been reflected in its
combined balance sheet at that date.
4. Pro Forma Condensed Balance Sheet
The following pro forma condensed balance sheet gives effect to the transfer
from Axion to AHC, as a contribution to the capital of AHC, of: (i) a cash
distribution from the Partnership to Axion of $13,615, subject to adjustment in
certain situations, of which $5,000 will be placed in an escrow fund (which
would require additional borrowings by the Partnership of $11,704 at that date);
(ii) $5,365 of other cash and cash equivalents at March 31, 1996 (representing
the remainder of Axion's cash and cash equivalents balances); and (iii) $13,500
redemption and carrying value of the 2,700,000 shares of Series A redeemable
preferred stock of OnCare. The pro forma condensed balance sheet does not
reflect the exercise of unexercised Axion stock options and warrants or the
transfer of loans receivable and cash received thereby from Axion to AHC. The
pro forma condensed balance sheet also gives effect to the elimination of the
existing intercompany indebtedness due Axion and its affiliates, the amount of
which was $1,786 at March 31, 1996, as an additional contribution to the capital
of AHC.
<PAGE>
<PAGE>
5
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments- Pro Forma
March 31, 1996 Increase (Decrease) March 31, 1996
-----------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1 $ 13,615(a) $ 18,981
5,365(b)
Other current assets 135 -- 135
-----------------------------------------------------
136 18,980 19,116
Net property and equipment 354 -- 354
Investment in OnCare -- 13,500(c) 13,500
-----------------------------------------------------
Total assets $ 490 $ 32,480 $ 32,970
=====================================================
Liabilities and stockholder's
equity (net capital
deficiency)
Current liabilities:
Accounts Payable and Accrued
Liabilities $ 735 -- $ 735
Non interest bearing advances
due parent and affiliates 1,786 (1,786)(d) --
Stockholders' equity (net
capital deficiency) (2,031) 34,266 (a-d) 32,235
-----------------------------------------------------
Total liabilities and
stockholder's equity (net
capital deficiency) $ 490 $ 32,480 $ 32,970
=====================================================
</TABLE>
- ----------
Contribution to capital of AHC as a result of:
(a) $13,615 final cash distribution from the Partnership to Axion.
(b) $5,365 of cash and cash equivalents held by Axion and its subsidiaries
other than the Partnership at March 31, 1996.
(c) 2,700,000 shares of Series A redeemable preferred stock of OnCare with a
redemption value of $13,500.
(d) Elimination of indebtedness due Axion and subsidiaries.
As a consolidated subsidiary of Axion, AHC has been allocated an income tax
benefit for the use of its losses in Axion's consolidated income tax returns.
Had the
<PAGE>
<PAGE>
6
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
distribution of the shares of common stock of AHC been made at January 1, 1995,
no such benefit would have been allocated to AHC.
5. Investment in OnCare to be Transferred to AHC
OnCare, formed by Axion in June 1995 is an oncology physician practice
management company. On December 31, 1995, Axion distributed all of its holdings
of the common stock of OnCare to the shareholders of Axion, including the
holders of shares of preferred and common stock and the holders of options and
other rights to acquire shares of common stock, and OnCare ceased to be a
consolidated subsidiary of Axion. Axion retained a $3,500 investment in OnCare's
Series A redeemable preferred stock and in February and March 1996 increased
that investment to $13,500. OnCare is obligated to redeem the Series A preferred
stock at a redemption price of $5 per share at the earlier of December 31, 1996,
the closing of a qualifying underwritten public offering of the common stock in
OnCare, the merger or consolidation of OnCare with or into another corporation,
or the sale of all or substantially all of OnCare's assets. The condensed
financial position of OnCare at March 31, 1996 and Axion's investment to be
transferred to AHC are summarized as follows:
Assets:
Cash $ 6,759
Receivables, property and other assets 6,508
Unamortized management services and other
intangible assets 4,579
-------
17,846
Liabilities:
Bank borrowings 2,000
Other 2,028
-------
4,028
-------
Net assets, represented by:
Series A redeemable preferred stock held by
Axion - 2,700,000 shares 13,500
Common equity ($1,563 paid in less $1,245
accumulated deficit) 318
-------
$13,818
=======
Axion's investment, to be transferred to AHC-
2,700,000 shares of Series A redeemable preferred
stock $13,500
=======
<PAGE>
<PAGE>
7
Axion HealthCare Inc. ("AHC")
(including OPUS Matrix)
Notes to Combined Financial Statements
(in thousands of dollars)
(Information at March 31, 1996 and for the three months ended
March 31, 1995 and 1996 is unaudited)
Revenues of OnCare for 1995 were $2,645 and its net loss was $670 after
income tax benefit of $450 allocated from Axion. Revenues of OnCare for the
three-month period ended March 31, 1996 were $2,624 and its net loss was $575,
without any income tax benefit.
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands of dollars)
The following discussion contains forward-looking statements. Axion's
actual results could differ materially from those discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Proxy
Statement/Prospectus, particularly in "Special Factors".
Overview
Neither AHC nor the OPUS Matrix Business has realized significant revenues
to date. Both have operated and continue to operate at a loss. Both have been
dependent upon Axion to finance their development activities.
Results of Operations
Revenues ($970 in 1995; $127 and $45 in the three month periods ended March
31, 1995 and 1996, respectively) have been derived primarily from clinical
outcomes services and cancer prevention studies done by AHC and a software
license sold by the OPUS Matrix Business.
Costs and expenses ($3,257 in 1995; $904 and $1,054 in the three month
periods ended March 31, 1995 and 1996) have represented primarily management
information systems costs for AHC and OPUS, software development costs of the
OPUS Matrix products, clinical studies costs incurred by AHC and administrative
costs incurred by both AHC and Opus Matrix, including amounts charged by Axion
for administrative services. Such amounts have remained relatively constant
during the periods presented.
AHC and the OPUS Matrix Business have been allocated income tax credits by
Axion for the benefits arising from inclusion of their operating losses in the
consolidated income tax returns of Axion.
AHC and the OPUS Matrix Business have incurred losses since their inception
and it is expected that such losses will continue for the foreseeable future.
Liquidity
Axion has provided the funds used by both AHC and the OPUS Matrix Business
for their development activities since inception. Advances by Axion and other
affiliates of Axion amounted to $1,572 in 1995 and an additional $214 in the
three months ended March 31, 1996. There can be no assurance that adequate
funding will be available to AHC from Axion or any other source.
Prior to the planned distribution of all of the outstanding shares of stock
of AHC (including OPUS Matrix), Axion intends to transfer to AHC: (i) a cash
distribution from OTN to OTNC and, in turn, from OTNC to Axion of $13,615,
subject to adjustment in certain situations, of which $5,000 will be placed in
an escrow fund; (ii) the remainder of Axion's cash and cash equivalents ($5,365
at March 31, 1996); (iii) the shares of Series A redeemable preferred stock of
OnCare Inc. ($13,500 representing 2,700,000 shares at March 31, 1996); and (iv)
the effect of the exercise of unexercised Axion stock options and warrants (and
related loans receivable estimated to be approximated $6,500). These cash and
cash equivalents balances plus other assets transferred to AHC will assist
53
<PAGE>
<PAGE>
the financing of its ongoing operations and investing activities. See Note 3 to
combined financial statements elsewhere herein.
54
<PAGE>
<PAGE>
MANAGEMENT
Officers and Directors
The officers and directors of AHC, and their ages as of June 30, 1996, are
as follows:
Name Age Position
---- --- --------
Michael D. Goldberg......... 38 President, Chief Executive Officer,
Chairman of the Board and Director
Garrett J. Roper............ 45 Vice President, Finance, Secretary,
Treasurer and Director
Eric T. Herfindal........... 54 Senior Vice President and Director
- ------------------
Mr. Goldberg has served as President, Chief Executive Officer and a
director of AHC and Axion since founding AHC in 1994 and Axion in 1987. Prior to
founding AHC, Mr. Goldberg was a partner at the venture capital firm Sevin Rosen
Funds, where he was responsible for the firm's investments in the biomedical
industry. Prior to his tenure with Sevin Rosen, he was Director of Corporate
Development and a member of the Operating Committee at Cetus Corporation, a
biotechnology company. Mr. Goldberg received a B.A. from Brandeis University and
an M.B.A. from the Stanford Graduate School of Business.
Mr. Roper has served as Vice President, Finance and Chief Financial Officer
and a director of AHC since its inception in 1994. Mr. Roper has served as Vice
President, Finance and Chief Financial Officer of Axion since January 1993. From
March 1989 to April 1992, Mr. Roper was Vice President of Finance for the North
American operations of Memorex Telex Corporation, a supplier of IBM compatible
computer equipment ("Memorex"). He joined Memorex in October 1987. For the 12
years prior to joining Memorex, Mr. Roper was a certified public accountant with
Arthur Young & Company (now Ernst & Young), an accounting firm. Mr. Roper holds
a B.A. from Denison University and an M.B.A. from Rutgers Graduate School of
Business.
Dr. Herfindal has served as Senior Vice President and a director of AHC
since 1994. Dr. Herfindal has served as Senior Vice President of Axion since
September 1993. From August 1988 until accepting his current position with AHC,
he served as a consultant to AHC. From 1968 to 1993 Dr. Herfindal was a
professor at the University of California at San Francisco, where he served most
recently as Chairman of Clinical Pharmacy and Director of Pharmaceutical
Services. Dr. Herfindal received a Pharm.D. from the University of California at
San Francisco and an M.P.H. from the University of California at Berkeley.
The officers and directors of AHC, serve in their same capacities as
officers and directors for OnCare. There are no family relationships between any
of the directors or executive officers of AHC. See "Special Factors--Dependence
Upon Key Personnel".
55
<PAGE>
<PAGE>
Director Compensation
AHC currently has authorized three directors. Each director holds office
until the next annual meeting of stockholders or until his successor is duly
elected and qualified. The officers serve at the discretion of the AHC Board.
Directors of AHC currently receive no compensation for their services as
directors.
Executive Compensation
The following table sets forth the compensation earned by AHC's Chief
Executive Officer and the two other executive officers whose salary and bonus
for the 1995 fiscal year was in excess of $100,000 (collectively, the "Named
Officers") for services rendered in all capacities to Axion and its subsidiaries
for that fiscal year:
56
<PAGE>
<PAGE>
Summary Compensation Table
Annual Compensation(1) Long-Term
---------------------- Compensation
---------------
Awards
Securities
Name and Present Underlying
Principal Position Salary Bonus Options
------------------ ------ ----- -------
Michael Goldberg $242,307 $187,836(2) 250,000
President, Chief
Executive Officer and
Chairman of the Board
Eric T. Herfindal $155,000 $86,625(3) 125,000
Senior Vice President
Garrett J. Roper $143,750 $97,164(4) 100,000
Vice President, Finance,
Secretary and Treasurer
- -------------------
(1) Represents salary and bonus paid during fiscal year 1995 as an Axion
employee.
(2) Includes $44,236 paid in the form of OnCare Inc. common stock.
(3) Includes $24,625 paid in the form of OnCare Inc. common stock.
(4) Includes $22,164 paid in the form of OnCare Inc. common stock.
Option Grants and Exercises in Last Fiscal Year
No option grants for shares of AHC's stock were made to the Named Officers
in fiscal year 1995. However, the following table contains information
concerning the grants of options to purchase shares of Axion Common Stock made
to each of the Named Officers for the fiscal year ended December 31, 1995. No
stock appreciation rights were granted to these individuals during such year.
57
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
----------------- Potential Realizable
Number of Value at Assumed
% of Total Annual Rates of
Securities Options Stock Price
Underlying Granted Exercise Appreciation for
Options to Employees or Option
Granted in Base Price Expiration Term (3)
Name (#)(1) Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
---- ------ ----------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Goldberg 150,000 15% $6.00 12/31/04 $566,005 $1,434,368
100,000 10% $10.00 12/31/04 $628,895 $1,593,742
Eric T. Herfindal 125,000 12.5% $6.00 12/31/04 $471,671 $1,195,307
Garrett J. Roper 100,000 10% $6.00 12/31/04 $377,337 $ 956,245
</TABLE>
- --------------------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable thereunder are subject to repurchase by Axion at the
original exercise price paid per share upon the optionee's cessation of
service prior to vesting in such shares. The repurchase right lapses and
the optionee vests in a series of 72 equal monthly installments. The option
shares will vest upon an acquisition of Axion by merger or asset sale,
including the Merger. Each option has a maximum term of ten (10) years,
subject to earlier termination in the event of the optionee's cessation of
employment or service with Axion or its affiliates.
(2) The exercise price may be paid in cash, in shares of Axion Common Stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. Axion
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares, together with any
federal and state income tax liability incurred by the optionee in
connection with such exercise.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. There can be no assurance provided
to any executive officer or any other holder of Axion's securities that the
actual stock price appreciation over the 10-year option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of Axion Common Stock appreciates over the option term, no value will
be realized from the option grants made to the executive officers.
58
<PAGE>
<PAGE>
Option Exercises and Fiscal Year-End Values
None of the Named Officers held options on shares of AHC during the fiscal
year ended December 31, 1995. None of the Named Officers exercised options on
shares of Axion Common Stock during the fiscal year. The following table sets
forth information concerning holdings of options on Axion stock for the fiscal
year ended December 31, 1995 with respect to each of the Named Officers. No
stock appreciation rights were exercised during such year or were outstanding at
the end of that year.
June 30, 1996 Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Securities Underlying in-the-Money
Unexercised Options Options
at June 30, 1996(#) at FY-End ($)(1)
------------------- ----------------
Name Exercisable(2) Unexercisable Exercisable Unexercisable
---- -------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael D. Goldberg 73,333 36,667 $557,330 $278,670
250,000* 0 $390,000 0
Eric T. Herfindal 54,167 20,833 $434,795 $158,330
125,000* 0 $325,000 0
Garrett J. Roper 58,333 21,667 $443,330 $164,670
100,000* 0 $260,000 0
</TABLE>
(1) Based on an assumed value of Axion Common Stock at the Effective Time of
$8.60 per share less the exercise price payable for such shares.
(2) Certain of the options are immediately exercisable for option shares (noted
by an asterisk in the table), but any shares purchased under the options
will be subject to repurchase by Axion at the original exercise price per
share upon the optionee's cessation of service. The repurchase right has
lapsed as to the following number of shares as of June 30, 1996: Mr.
Goldberg: 62,500; Dr. Herfindal: 31,250; Mr. Roper: 25,000. The repurchase
right will lapse upon an acquisition of Axion by merger or asset sale,
including the Merger.
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1995 Executive Stock Option Plan
Axion's 1995 Executive Stock Option Plan (the "1995 Plan") was adopted by
the Axion Board on April 4, 1995, and approved by the stockholders on June 7,
1995. 600,000 shares of Axion Common Stock have been authorized for issuance
under the 1995 Plan. As of June 30, 1996, no shares had been issued under the
1995 Plan, options for 600,000 shares had been granted and were outstanding and
no shares remained available for future grant. Shares of Axion Common Stock
subject to outstanding options which expire or terminate prior to exercise will
be available for future issuance under the 1995 Plan. The Merger Agreement
provides, however, that Axion will not, nor will it permit any of its
subsidiaries to issue any shares of capital stock or rights, warrants or options
to purchase any such shares. See "The Merger--Covenants" in the Proxy
Statement/Prospectus to which this Information Statement is attached as Appendix
G.
Under the 1995 Plan, employees who are officers of Axion may, at the
discretion of the plan administrator, be granted options to purchase shares of
Axion Common Stock. The exercise price may be more or less than the fair market
value of such shares on the grant date. The 1995 Plan is administered by the
Axion Board.
The exercise price for options granted under the 1995 Plan may be paid in
cash or in outstanding shares of Axion Common Stock. Options may also be
exercised on a cashless basis through the same-day sale of the purchased shares,
provided the Axion Common Stock is then registered under Federal securities
laws. The Axion Board may also permit the optionee to pay the exercise price
through a promissory note payable in installments over a period of years. The
amount financed may include any Federal or state income and employment taxes
incurred by reason of the option exercise.
Each option includes a special stock appreciation right which provides
that, upon the acquisition of 50% or more of Axion's outstanding voting stock
pursuant to a hostile tender offer, when Axion's officers are subject to the
short-swing profit restrictions of the Federal securities laws, such option, if
outstanding for at least six months, will automatically be cancelled in exchange
for a cash distribution to the officer based upon the tender offer price.
The Axion Board has the authority to effect, from time to time, the
cancellation of outstanding options under the 1995 Plan in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Axion Common
Stock on the new grant date. The Merger Agreement provides, however, that Axion
will not, nor will it permit any of its subsidiaries to issue any shares of
capital stock or rights, warrants or options to purchase any such shares. See
"The Merger--Covenants" in the Proxy Statement/Prospectus to which this
Information Statement is attached as Appendix G.
In the event Axion is acquired by merger, consolidation, reverse merger or
asset sale, the shares of Axion Common Stock subject to each option outstanding
at the time under the 1995 Plan will immediately vest in full and will
accelerate. Options not exercised prior to the Merger will terminate.
The Axion Board may amend or modify the 1995 Plan at any time. The 1995
Plan will terminate on April 3, 2005, unless sooner terminated by the Axion
Board.
1989 Stock Option and Restricted Stock Plan
The Axion 1989 Stock Option and Restricted Stock Plan (the "1989 Plan") was
adopted by the Axion Board of Directors on February 21, 1990, and approved by
the stockholders on February 21, 1990. 2,000,000 shares of Axion Common Stock
have been authorized for issuance under the 1989 Plan. The 1989 Plan has been
amended on several occasions, most recently on August 10, 1994, to increase the
number of shares
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issuable thereunder by 1,000,000 shares and April 4, 1995, to add an automatic
option grant program. As of June 30, 1996, 266,596 shares had been issued under
the 1989 Plan, options for 1,105,215 shares had been granted and were
outstanding and 628,189 shares remained available for future grant. Shares of
Axion Common Stock subject to outstanding options, which expire or terminate
prior to exercise will be available for future issuance under the 1989 Plan.
Under the 1989 Plan, employees (including officers), non-employee members
of the Board and independent consultants of Axion or its subsidiaries may, at
the discretion of the plan administrator, be granted options to purchase shares
of Axion Common Stock at an exercise price not less than 85% of the fair market
value of such shares on the grant date or issued shares directly for
consideration which may consist of cash or past services rendered to Axion or
its subsidiaries. Non-employee members of the Axion Board are also eligible for
automatic option grants under the 1989 Plan. The 1989 Plan is administered by
the Axion Board.
The exercise price for options granted under the 1989 Plan may be paid in
cash or in outstanding shares of Axion Common Stock. Options may also be
exercised on a cashless basis through the same-day sale of the purchased shares,
provided the Axion's common stock is publicly traded. The Axion Board may also
permit an optionee or participant to pay the exercise or purchase price through
a promissory note payable in installments over a period of years. The amount
financed may include any Federal or state income and employment taxes incurred
by reason of the option exercise.
Each option granted to an officer of Axion subject to the short-swing
profit restrictions of the Federal securities laws includes a special stock
appreciation right which provides that, upon the acquisition of 50% or more of
Axion's outstanding voting stock pursuant to a hostile tender offer, such
option, if outstanding for at least six months, will automatically be cancelled
in exchange for a cash distribution to the officer based upon the tender offer
price.
The Axion Board has the authority to effect, from time to time, the
cancellation of outstanding options under the 1989 Plan in return for the grant
of new options for the same or different number of option shares with an
exercise price per share based upon the fair market value of the Axion Common
Stock on the new grant date.
In the event Axion is acquired by merger, consolidation or asset sale
("corporate transaction"), options granted after August 10, 1994, will terminate
unless assumed by the successor corporation; options granted before that date
accelerate and then terminate upon a corporate transaction unless the option is
assumed by the successor corporation. The shares of Axion Common Stock awarded
under the 1989 Plan, including unvested shares purchased upon exercise of an
option, will immediately vest in full upon a corporate transaction, except to
the extent Axion's repurchase rights with respect to those shares are to be
assigned to the acquiring entity. The Merger will constitute a corporate
transaction and therefore will result in acceleration of the exercisability of
pre-August 10, 1994 options and the accelerated lapsing of the repurchase right
under all outstanding options. Axion options will not be assumed in connection
with the Merger and Axion's repurchase right shall not be assigned in connection
with the Merger.
Under the automatic grant program, each individual serving as a
non-employee director on April 4, 1995, and each individual who first joins the
Axion Board as a non-employee director on or after that date, will receive an
automatic option grant for 10,000 shares of Axion Common Stock. In addition, on
April 1 each year beginning April 1, 1996, each non-employee director will
automatically be granted on that date, a stock option to purchase 10,000 shares
of Axion Common Stock, provided such individual has served on the Axion Board
for at least six months prior to such meeting. Each option will have an exercise
price equal to the fair market value of the Axion Common Stock on the automatic
grant date and a maximum term of ten years, subject to earlier termination
following the optionee's cessation of Axion Board service. The option will be
immediately exercisable for all of the shares but the shares will be subject to
repurchase at original cost. The repurchase right shall lapse
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and the optionee vest in a series of 48 monthly installments over the optionee's
period of Axion Board service, beginning one month from the grant date, subject
to accelerated lapsing upon a corporate transaction.
In the event that more than 50% of Axion's outstanding voting stock were to
be acquired pursuant to a hostile tender offer, each automatic option grant
which has been outstanding for at least six months may be surrendered to Axion
in return for a cash distribution from Axion based upon the tender offer price
per share of Axion Common Stock at the time subject to the surrendered option.
The Axion Board may amend or modify the 1989 Plan at any time. The 1989
Plan will terminate on February 20, 2000, unless sooner terminated by the Axion
Board.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF AHC
All of the outstanding shares of AHC Common Stock are, and will be prior to
the Distribution, held beneficially and of record by Axion. The following table
sets forth certain information regarding beneficial ownership of Axion's Common
Stock as of July 31, 1996, (i) by each person who is known by AHC to
beneficially own more than five percent of Axion's common stock, (ii) by each of
AHC's directors and executive officers, and (iii) by all current directors and
executive officers as a group. Because the Distribution will be made on the
basis of one share of AHC Preferred Stock for each share of then outstanding
Axion Common Stock, the percentage ownership of each person or entity named
below immediately following the Distribution will be the same as the percentage
ownership of such person or entity immediately prior to the Distribution.
Shares Percent
Beneficially Beneficially
Name of Beneficial Owner Owned(1)(2) Owned
------------------------ ----------- -----
Sevin Rosen Fund II L.P.(3) ........................ 3,060,067 36.66%
c/o Sevin Rosen Funds
Two Galleria Towers, Suite 1670
Dallas, TX75240
Galen Partners (4) ................................. 1,079,755 12.88
666 Third Avenue
Suite 1400
New York, NY 10017
Funds affiliated with Kleiner Perkins
Caufield & Byers (5) ............................. 1,005,000 12.04
2750 Sand Hill Rd ..............................
Menlo Park, CA 94025
Michael D. Goldberg (6) ............................ 799,000 9.18
Garrett J. Roper (7) ............................... 180,000 2.11
David L. Levison (8) ............................... 245,000 2.86
Eric T. Herfindal (9) .............................. 250,000 2.92
Donna M. Williams (10) ............................. 50,000 *
Robert V. Gunderson, Jr. (11) ...................... 5,000 *
George B. Borkow (12) .............................. 20,000 *
Stephen M. Dow (13) ................................ 3,090,067 36.93
Steven M. Gluckstern (14) .......................... 180,000 2.15
Joseph S. Lacob (15) ............................... 30,000 *
William R. Miller (16) ............................. 40,000 *
L. John Wilkerson (4) .............................. 1,079,755 12.88
All current directors and executive officers
as a group (12 persons) (17) ..................... 5,968,822 62.93%
--------- -----
- ----------
* Less than 1%
(1) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Axion
Common Stock.
(2) The number of shares of Axion Common Stock deemed beneficially owned
includes shares issuable pursuant to stock options exercisable
(assuming the acceleration of the exercisability of such options) and
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further incudes options exercisable (assuming the exercisability of
such options) within 60 days after July 31, 1996.
(3) Excludes 19,933 shares of Axion Common Stock held by a general partner
of SRB Associates II, a Texas general partnership ("SRB Associates").
SRB Associates is the general partner of Sevin Rosen Fund II L.P., a
Texas limited partnership ("Sevin Rosen II").
(4) Includes 750,900 shares of Axion Common Stock held by Galen Partners
II, L.P., a Delaware limited partnership ("Galen II"), 287,301 shares
of Axion Common Stock held by Galen Partners International II, L.P., a
Delaware limited partnership ("Galen International II"), 5,000 Axion
shares of Axion Common Stock held by Rebound Two (Delaware), LLC, a
Delaware limited liability company, and 4,054 shares held by Galen
Employee Fund, L.P., a Delaware limited partnership. Also includes an
option exercisable into 30,000 shares of Axion Common Stock under the
Axion 1989 Plan held by Galen Associates, a Delaware limited
partnership, and an option exercisable into 2,500 shares of Axion
Common Stock under the Axion 1989 Plan held by Longbow Partners, a New
York general partnership (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock under the Axion 1989 Plan and 2,500
shares of Axion Common Stock under the Axion 1995 Plan (assuming the
exercisability of such options within 60 days after July 31, 1996). Dr.
Wilkerson, a director of Axion, is a general and limited partner of GWW
Partners L.P. ("GWW Partners"), the general partner of Galen II and
Galen International II. Dr. Wilkerson disclaims beneficial ownership of
the shares held by Galen II and Galen International II except to the
extent of his pecuniary interest therein arising from his interest in
GWW Partners. Dr. Wilkerson is also a controlling stockholder of two
corporations that are general partners of Galen Associates. Dr.
Wilkerson disclaims beneficial ownership of the options held by Galen
Associates except to the extent of his pecuniary interest therein
arising from his interests as a stockholder in the corporations that
are general partners of Galen Associates. Dr. Wilkerson is a general
partner of Longbow Partners and disclaims beneficial ownership of the
options held by Longbow Partners except to the extent of his pecuniary
interest therein.
(5) Includes 954,750 shares of Axion Common Stock held by Kleiner Perkins
Caufield & Byers V, a California limited partnership ("KPCB V"), and
50,250 shares of Axion Common Stock held by KPCB Zaibatsu Fund I, a
California limited partnership ("Zaibatsu").
(6) Includes options exercisable into 110,000 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 93,882 shares of Axion Common Stock
under the Axion 1989 Plan and 250,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996). Mr. Goldberg has advised Axion
that he does not intend to exercise the Goldberg $10.00 Options, and,
accordingly, the Goldberg $10.00 Options will be canceled prior to the
Effective Time.
(7) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 73,277 shares of Axion Common Stock
under the Axion 1989 Plan and 100,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996).
(8) Includes options exercisable into 80,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 76,638 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996). Includes 6,500 shares of Axion
Common Stock held in
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a trust for the benefit of his children (the "Levison Trust"), of which
Mr. Levison is a trustee. Mr. Levison disclaims beneficial ownership of
the shares held by the Levison Trust.
(9) Includes options exercisable into 75,000 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares under the Axion 1995 Plan
(assuming the acceleration of the exercisability of such options) and
includes options exercisable into 63,507 shares of Axion Common Stock
under the Axion 1989 Plan and 125,000 shares of Axion Common Stock
under the Axion 1995 Plan (assuming the exercisability of such options
within 60 days after July 31, 1996).
(10) Includes options exercisable into 50,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
17,674 shares of Axion Common Stock under the Axion 1989 Plan (assuming
the exercisability of such options within 60 days after July 31, 1996).
(11) Robert V. Gunderson, Jr., is a member of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, counsel to Axion.
(12) Includes options exercisable into 20,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and 20,000 shares of Axion Common Stock
(assuming the exercisability of such options within 60 days after July
31, 1996).
(13) Includes 3,060,067 shares held by Sevin Rosen Fund II L.P. and options
exercisable into 20,000 shares of Axion Common Stock under the Axion
1989 Plan (assuming the acceleration of the exercisability of such
options) and includes options exercisable into 20,000 shares of Axion
Common Stock under the Axion 1989 Plan (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Dow disclaims
beneficial ownership of such shares of stock held by Sevin Rosen Fund
II L.P. and disclaimed beneficial ownership of such shares except to
the extent of his pecuniary interest therein arising from his interest
in Sevin Rosen Fund II L.P.
(14) Includes 150,000 shares held by Centre Reinsurance Holdings Ltd.
("Centre") (and options exercisable into 30,000 shares of Axion Common
Stock under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Gluckstern
disclaims beneficial ownership of such shares of stock held by Centre
and disclaimed beneficial ownership of such chares except to the extent
of his pecuniary interest therein arising from his interest in Centre.
(15) Includes options exercisable into 30,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
30,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996). Mr. Lacob does not
have voting or investment power over the shares held by KPCB V and
Zaibatsu.
(16) Includes options exercisable into 10,000 shares of Axion Common Stock
under the Axion 1989 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
10,000 shares of Axion Common Stock (assuming the exercisability of
such options within 60 days after July 31, 1996).
(17) Includes options exercisable into 1,137,500 shares of Axion Common
Stock under the Axion 1989 Plan and 600,000 shares of Axion Common
Stock under the Axion 1995 Plan (assuming the acceleration of the
exercisability of such options) and includes options exercisable into
499,804 shares of Axion Common
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Stock under the Axion 1989 Plan and 600,000 shares of Axion Common
Stock under the Axion 1995 Plan (assuming the exercisability of such
options within 60 days after July 31, 1996).
EXECUTIVE COMPENSATION PLANS IN EFFECT AFTER THE DISTRIBUTION
Set out below is a description of the principal employee benefit and
compensation plans of AHC that will be in effect following the Distribution and
the Merger and in which Mr. Goldberg, Dr. Herfindal and Mr. Roper, the three
Named Officers, will participate. Also set out below is a description of the
effect of the Spinoff and Merger on certain of the existing plans maintained by
Axion in which the Named Officers currently participate. Mr. Levison will not
participate in plans of AHC after the Merger but was eligible to participate in
plans maintained by Axion and will be eligible to participate in plans of BMS or
its subsidiaries for which he is eligible after the Merger.
401(k) Plan
AHC expects to maintain a 401(k) Plan to be effective at the Time of
Distribution for the eligible employees of AHC. The 401(k) Plan will permit
salary deferral contributions and employer matching and profit sharing
contributions at the discretion of AHC. Account balances held on behalf of
employees of AHC under the existing Axion 401(k) Plan will be transferred in a
trustee-to-trustee transfer from the Axion 401(k) Plan to AHC's 401(k) Plan.
Annual Incentive Awards
In past years, the Axion Board has approved bonuses payable in cash or
stock to the officers and key employees of Axion. Bonuses are accrued quarterly
and paid annually based on the eligible employee's achievement of individual
goals specified by the Axion Board, in the case of officers, and specified by
management, in the case of other employees. Payment of bonuses and eligibility
for bonuses is subject to the discretion of the Axion Board. AHC maintains a
comparable bonus plan. AHC anticipates that it will pay bonuses at the end of
the 1996 fiscal year to the employees who continue in employment with AHC for
services performed during the 1996 fiscal year. Bonuses are generally in
proportion to base salary and normally fall within a range of 5% to 40% of base
salary.
Other Features of Plan and Predecessor Plans
Options outstanding under the Axion Inc. 1989 Stock Option and Restricted
Plan ("1989 Plan") and the Axion Inc. 1995 Executive Stock Option Plan ("1995
Plan") will terminate upon consummation of the Merger to the extent not
exercised prior to the Merger.
Consistent with the 1989 Plan and the 1995 Plan, the Axion Board intends to
allow each optionee, including each of the Named Officers, to exercise his or
her stock options granted under the 1989 Plan or 1995 Plan by delivery of the
optionee's full recourse promissory note. Each such note shall be unsecured,
shall bear interest at the applicable Federal rate established by the IRS and
shall be due at the end of two years, subject to acceleration to the extent the
optionee sells any of the Axion Common Stock purchased with the note or the BMS
shares received in exchange for such Axion Common Stock. Such notes will be
contributed by Axion to AHC pursuant to the Distribution.
Upon exercise of an option under the 1989 Plan or 1995 Plan, each optionee,
including each of the Named Officers, will participate as a stockholder in the
Spinoff and accordingly will receive one share of the Series A Preferred Stock
of AHC on account of each share of Axion Common Stock owned by such individual
as of the record date for the Spinoff. In the case of shares of Axion Common
Stock and Axion Options that are not yet vested as of the date of the Spinoff
the optionees have agreed in consideration to being permitted to exercise
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such options to deliver a promissory note, that provides that, the shares of AHC
Preferred Stock will likewise be subject to repurchase by AHC at a price equal
to the fair market value of the AHC Preferred Stock on the date of the spinoff
in the event that the holder's employment terminates; AHC's repurchase right
will lapse and the individual will vest in the shares in a series of
installments over the individual's service with AHC, with credit for service at
Axion.
DESCRIPTION OF AHC CAPITAL STOCK
Authorized Capital Stock
In accordance with the Distribution Agreement, Axion will appropriately
cause AHC to amend the Certificate of Incorporation in effect prior to the
Distribution to, among other things, increase the currently authorized number of
shares of AHC Preferred Stock and to convert each issued and outstanding share
of AHC Common Stock into a number of shares of AHC Preferred Stock equal to the
quotient of (A) the number of shares of Axion Common Stock outstanding
immediately prior to the Time of Distribution (including any shares of Axion
Common Stock issued in connection with the conversion of Axion Preferred Stock
to Axion Common Stock and the exercise of Axion Options, in each case in
connection with the consummation of the Merger) divided by (B) the number of
shares of AHC Common Stock outstanding immediately prior to the Time of
Distribution. See "The Distribution - Terms of the Distribution Agreement".
Under the Restated Certificate, the total number of shares of all classes of
stock that AHC will have authority to issue is 20,000,000 of which 10,000,000
may be shares of AHC Common Stock.
The authorized capital stock of AHC consists of 10,000,000 shares of Common
Stock, $.0001 par value, and 10,000,000 shares of Preferred Stock, $.0001 par
value, after giving effect to the Restated Certificate.
Based on the number of shares of Axion Common Stock outstanding as of June
30, 1996 (and assuming the exercise of all Axion Options outstanding immediately
prior to the Time of Distribution), it is estimated that approximately 9,977,756
shares of AHC Preferred Stock will be distributed to Axion stockholders in the
Distribution. No shares of the Axion Preferred Stock were outstanding at July
31, 1996. All the shares of AHC Preferred Stock to be distributed to Axion
stockholders in the Distribution will be fully paid and non-assessable.
The following summary describes material provisions of, but does not
purport to be complete and is subject to, and qualified in its entirety by, the
Restated Certificate attached as Annex I hereto and by applicable provisions of
law.
AHC Common Stock
As of July 31, 1996, there were 1,000 shares of AHC Common Stock
outstanding. There will be no shares of AHC Common Stock outstanding after
giving effect to the Distribution.
Any holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, any holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividends and Dividend Policy". In the event of liquidation, dissolution or
winding up of AHC, any holders of Common Stock are entitled to share ratably in
all assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common
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Stock are fully paid and nonassessable, and the shares of Common Stock to be
issued upon completion of this offering will be fully paid and nonassessable.
AHC Preferred Stock
Restated authorizes 10,000,000 shares of Preferred Stock. AHC Board has the
authority to issue the Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of AHC without further
action by the stockholders and may adversely affect the voting and other rights
of the holders of Common Stock. The issuance of Preferred Stock with voting and
conversion rights may adversely affect the voting power of the holders of Common
Stock, including the loss of voting control to others. At present, AHC has no
plans to issue any series of Preferred Stock other than AHC Preferred Stock.
Upon consummation of the Distribution, the holders of Axion Common Stock
will become holders of AHC Preferred Stock. In accordance with the Distribution,
Axion will cause AHC to amend the Certificate of Incorporation of AHC to
establish certain rights, preferences and privileges of the AHC Preferred Stock.
Pursuant to such amendments, AHC Preferred Stock will not be redeemable. Holders
of AHC Preferred Stock will be entitled to one vote per share and will have a
liquidation preference in the event of any liquidation, dissolution or winding
up of AHC and are paid before any payments are made to any holders of AHC Common
Stock. Each share of AHC Preferred Stock may be convertible at any time and from
time to time into one share of AHC Common Stock, subject to adjustments, among
other things, stock splits and stock dividends. AHC Preferred Stock will not be
transferrable except as permitted in the Restated Certificate. AHC Preferred
Stock will not be transferable except for (i) transfers to AHC; (ii) transfers
to existing AHC stockholders; (iii) transfers by gift bequest or operation of
the laws of descent, provided that the AHC Preferred Stock in the hands of the
transferee remains subject to the same restrictions on transfer as they were
when held by the transferor; (iv) transfers to an entity unaffiliated with AHC
pursuant to the merger, consolidation, stock for stock exchange or similar
transaction involving AHC; (v) transfers by a partnership to its partners,
provided that the AHC Preferred Stock in the hands of the transferee remains
subject to the same restrictions on transfer as they were when held by the
transferor; and (vi) transfers which would be exempt from the registration
requirements of Section 5 of the Securities Act by virtue of the exemption
provided by Section 4(2) of the Securities Act if the transferor were the issuer
of the AHC Preferred Stock, provided that the transferee is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act and the AHC
Preferred Stock in the hands of such transferee remains subject to the same
restrictions on transfer as they were when held by the transferor, or a transfer
pursuant to an effective registration under the Securities Act.
No Preemptive Rights
No holder of any stock of any class of AHC authorized at the Time of
Distribution will then have any preemptive right to subscribe to any securities
of any kind or class.
Description Of Certain Statutory, Certificate of Incorporation and Bylaw
Provisions
Section 203 of the Delaware General Corporation Law
Section 203 of the DGCL, a statutory provision restricting business
combinations with stockholders who acquire 15 percent or more of a corporation's
voting stock, is applicable to Axion and will be applicable to AHC after the
Distribution. The DGCL prohibits certain 'business combination' transactions
between a publicly held Delaware corporation and any interested stockholder for
a period of three years after the date on which the
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interested stockholder became an interested stockholder unless (a) prior to that
date the corporation's board of directors approved either the proposed business
combination or the transaction which resulted in the interested stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested stockholder,
the interested stockholder owned at least 85 percent of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (i)
by persons who are directors and also officers and (ii) by employee stock plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer, or (c) on or subsequent to such date the business combination is approved
by the corporation's board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
The DGCL would not prevent the holder of a controlling interest from
exercising control over AHC and would not prevent a hostile takeover or hostile
acquisition of control of AHC. The DGCL may, however, discourage or make more
difficult a hostile takeover or acquisition of control.
Number of Directors; Removal; Vacancies
The Restated Certificate provides that the number of directors will be
determined from time to time by a majority of AHC Board. The Restated Bylaws
provide that only AHC Board will be entitled to fill vacancies, including
vacancies created by expansion of AHC Board.
The Restated Certificate further provides that directors may be removed
with or without cause unless otherwise restricted by the Certificate of
Incorporation or the Restated Bylaws.
Stockholder Action by Unanimous Consent; Special Meetings
The Restated Certificate provides that stockholder action may be taken only
at an annual or special meeting of stockholders and that action may be taken by
the written consent of stockholders in lieu of a meeting. The Restated Bylaws
provide that special meetings of AHC's stockholders may be called pursuant to a
resolution approved by a majority of AHC Board or a majority of AHC's
stockholders.
Amendment of Certain Charter and Bylaw Provisions
The Restated Certificate provide that AHC Board may adopt, amend or repeal
any provision of the Restated Bylaws. The Restated Bylaws also provide that
Bylaw provisions may be adopted, amended or repealed by the affirmative vote of
a majority of stockholders who are entitled to cast votes.
Preferred Stock
Under the Restated Certificate, AHC Board will have the authority to
provide by resolution for the issuance of shares of one or more series of AHC
Preferred Stock and to fix the terms and conditions of each such series. See
"Description of Capital Stock of AHC". The authorized shares of AHC Preferred
Stock, as well as authorized but unissued shares of AHC Common Stock, will be
available for issuance without further action by AHC's stockholders, unless
stockholder action is required by applicable law or by the rules of a stock
exchange on which any series of AHC's stock may then be listed.
These provisions will give AHC Board the power to approve the issuance of a
series of AHC Preferred Stock that could, depending on its terms, either impede
or facilitate the completion of a merger, tender offer or other takeover
attempt. For example, the issuance of new shares might impede a business
combination if the terms of those shares include voting rights which would
enable a holder to block business combinations.
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Conversely, the issuance of new shares might facilitate a business combination
if those shares have general voting rights sufficient to cause an applicable
percentage vote requirement to be satisfied.
Indemnification and Insurance
Pursuant to authority conferred by DGCL Section 102(b)(7), the Restated
Certificate contains a provision providing that no director of AHC shall be
liable to it or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that such exemption from liability or
limitation thereof is not permitted under the DGCL as then in effect or as the
same may be amended. This provision is intended to eliminate the risk that a
director might incur personal liability to AHC or its stockholders for breach of
the duty of care.
DGCL Section 145 contains provisions permitting, and in some situations
requiring, Delaware corporations, such as AHC, to provide indemnification to
their officers and directors for losses and litigation expenses incurred in
connection with their service to the corporation in those capacities. The
Restated Bylaws will contain provisions requiring indemnification by AHC of, and
advancement of expenses to, its directors and officers to the fullest extent
permitted by law. Among other things, these provisions will provide
indemnification for AHC's officers and directors against liabilities for
judgments in and settlements of lawsuits and other proceedings and for the
advance and payment of fees and expenses reasonably incurred by the director or
officer in defense of any such lawsuit or proceeding.
AHC intends to purchase and maintain insurance on behalf of any person who
is or was a director or officer of AHC, or is or was a director or officer of
AHC serving at the request of AHC as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, ether or not AHC
would have the power or the obligation to indemnify him against such liability
under the provisions of the Restated Bylaws.
The form of the Restated Certificate and Restated Bylaws are attached to
this Information Statement as Annex I and Annex II, respectively, and are
incorporated herein by reference. The foregoing descriptions of certain
provisions of the Restated Certificate and Restated Bylaws does not purport to
be complete and are subject to, and are qualified in entirety by reference to,
the Restated Certificate and Restated Bylaws, respectively, including the
definitions therein of certain terms.
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COMPARISON OF CERTAIN RIGHTS OF
HOLDERS OF COMMON STOCK
The rights of the holders of AHC Preferred Stock will be governed by the
Restated Certificate and the Restated Bylaws, while the rights of the holders of
Axion Common Stock are governed by the Axion Certificate of Incorporation and
the Axion Bylaws. Both AHC and Axion are governed by the DGCL. Upon consummation
of the Merger, the stockholders of Axion will become stockholders of AHC. The
Restated Certificate and the Restated Bylaws will remain in effect after the
Merger. Below is a summary of certain differences between the rights of holders
of AHC Common Stock, on the one hand, and the holders of Axion Common Stock on
the other, resulting from differences in governing law and the respective AHC
and Axion certificates of incorporation and by-laws.
The following summary does not purport to be a complete statement of the
rights of AHC stockholders under the Restated Certificate and the Restated
Bylaws compared with the rights of holders of Axion Common Stock under the Axion
Certificate of Incorporation and the Axion Bylaws. This summary is qualified in
its entirety by reference to the respective AHC and Axion certificates of
incorporation and by-laws.
Certain Business Combinations
The Restated Certificate requires the affirmative vote of the holders of
more than 50% of the outstanding shares of stock of AHC for any transaction that
would result in a reorganization of Axion, or the merger or consolidation of
Axion with or into another corporation, or the effectuation by Axion of a
transaction or series of transactions in which more than 50% of the voting power
of Axion is disposed of (a "Change in Control").
Axion's Certificate of Incorporation requires, so long as no fewer than an
aggregate of 500,000 shares of Axion Series A Preferred Stock, par value $.001
per share (the "Axion Series A"), Axion Series B Preferred Stock, par value
$.001 per share (the "Axion Series B"), Axion Series C Preferred Stock, par
value $.001 per share (the "Axion Series C"), Axion Series D Preferred Stock,
par value $.001 per share (the "Axion Series D"), Axion Series E Preferred
Stock, par value $.001 per share (the "Axion Series E"), or Axion Series F
Preferred Stock, par value $.001 per share (the "Axion Series F") are
outstanding, that for as Change in Control of Axion or the sale of all or
substantially all of the assets of Axion must be approved by the holders of at
least 50% of the then outstanding shares of Axion Preferred Stock (excluding
from such vote the shares of any series of Axion Preferred Stock of which there
are fewer than 100,000 shares outstanding), voting together as a single class.
Removal of Directors
The Restated Bylaws provide that the AHC Board or any individual director
may be removed from office, with or without cause, by a vote of stockholders
holding a majority of outstanding shares entitled to vote at an election of
directors.
The Axion Bylaws provide that, at a special meeting of stockholders called
for such purpose, the Axion Board or any individual director may be removed from
office, with or without cause, and a new director or directors elected by a vote
of stockholders holding a majority of the outstanding shares entitled to vote at
an election of directors.
Vacancies on the Board of Directors
The Restated Bylaws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected will hold office
until the next annual election and until his successor is duly elected and
qualified.
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The Axion Bylaws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, although less than a quorum, or
by a sole remaining director, and each director so elected will hold office for
the unexpired portion of the term of the director whose place shall be vacant
and until his successor is duly elected and qualified. Vacancies are deemed to
exist in the case of the death, removal or resignation of any director, or if
the stockholders fail at any meeting of stockholders of which directors are to
be elected to elect the number of directors constituting the entire Axion Board.
Under the Axion Certificate of Incorporation, any vacancy occurring because
of the death, resignation, or removal of a director elected by the holders of
Axion Series A, the holders of Axion Series B or the holders of Axion Series C
will be filled by the vote or written consent of the holders of a majority of
the shares of that series or, in the absence of such action by such holders, by
action of the remaining directors then in office. Any vacancy occurring because
of the death, resignation or removal of a director elected by the holders of
outstanding Axion Common Stock will be filled by the vote or written consent of
the holders of a majority of the outstanding shares of Axion Common Stock or, in
the absence of such action by such holders, by action of the remaining directors
then in office.
Amendments to the Certificate of Incorporation
The Restated Certificate requires approval by the holders of at least 50%
of the then outstanding shares of stock for the addition, amendment or repeal of
any provision of AHC's Restated Certificate that would adversely alter or change
the preferences, rights, privileges or powers of such shares. Notwithstanding
the previous sentence, the Restated Certificate provides that AHC reserves the
right to amend, alter, change or repeal any provision contained in the Restated
Certificate, in the manner now or hereafter prescribed by statute and that all
rights conferred upon stockholders therein are granted subject to that
reservation.
The Axion Certificate of Incorporation requires, so long as no fewer than
an aggregate of 500,000 shares of Axion Series A, Axion Series B, Axion Series
C, Axion Series D, Axion Series E or Axion Series F are outstanding, that the
addition, amendment or repeal of any provision of the Axion Certificate of
Incorporation that would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of the
Axion Preferred Stock must be approved by the holders of at least 50% of the
then outstanding shares of Axion Preferred Stock (excluding from such vote the
shares of any series of Axion Preferred Stock of which there are fewer than
100,000 shares outstanding), voting together as a single class. Notwithstanding
the previous sentence, the Axion Certificate of Incorporation provides that
Axion reserves the right to amend, alter, change or repeal any provision
contained in the Axion Certificate of Incorporation, in the manner now or
hereafter prescribed by statute and that all rights conferred upon stockholders
therein are granted subject to that reservation.
Amendments to Restated Bylaws
The Restated Bylaws may be altered, amended or repealed by or new Restated
Bylaws adopted by the AHC stockholders. Under the Restated Bylaws, the
affirmative vote of stockholders holding a majority of outstanding shares
entitled to vote is required to adopt, amend or repeal any provisions of the
Restated Bylaws. Notwithstanding the preceding, the AHC Board may from time to
time make, amend, supplement or repeal the Restated Bylaws; provided however,
that the AHC stockholders may change or repeal any Restated Bylaw adopted by the
AHC Board; and provided, further, that no amendment or supplement to the
Restated Bylaws adopted by the AHC Board may vary or conflict with any amendment
or supplement to the Restated Certificate adopted by AHC stockholders.
The Axion Bylaws may be repealed, altered or amended or new Restated Bylaws
adopted by the Axion stockholders. Under the Axion Bylaws, the affirmative vote
of the holders of at least 66-2/3% of the voting power of all the then
outstanding shares of the capital stock of Axion entitled to vote generally in
the election of
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directors, voting together as a single class, is required to adopt, amend or
repeal any provisions of the Axion Bylaws. The Axion Certificate of
Incorporation requires, so long as no fewer than an aggregate of 500,000 shares
of Axion Series A, Axion Series B, Axion Series C, Axion Series D, Axion Series
E or Axion Series F are outstanding, the approval of the holders of at least 50%
of the then outstanding shares of Axion Preferred Stock (excluding from such
vote the shares of any series of Axion Preferred Stock of which there are fewer
than 100,000 shares outstanding), voting together as a single class, to amend,
repeal or add any provision to the Axion Bylaws, if such action would adversely
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Axion Preferred Stock.
Notwithstanding the preceding, the Axion Board may from time to time make,
amend, supplement or repeal the Axion Bylaws; provided, however, that the Axion
stockholders may change or repeal any Bylaw adopted by the Axion Board; and
provided, further, that no amendment or supplement to the Axion Bylaws adopted
by the Axion Board will vary or conflict with any amendment or supplement to the
Axion Certificate of Incorporation adopted by Axion stockholders.
Special Meetings of Stockholders; Action by Written Consent
The Restated Bylaws provide that special meetings of AHC stockholders may
be for any purpose or purposes, by the President of AHC, the AHC Board or at the
request in writing of stockholders holding a majority of outstanding shares
entitled to vote. The Restated Bylaws also provide that, any action required to
be taken at any annual or special meeting of stockholders or any action which
may be taken at any annual or special meeting of stockholders, may be taken
without a meeting, without prior notice and without a vote, if written consent,
setting forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted.
The Axion Bylaws provide that special meetings of Axion stockholders may be
called at any time, for any purpose or purposes, only by the President of Axion
or the Axion Board. The Axion Bylaws further provide that any action required by
statute to be taken at any annual or special meeting of the stockholders, or any
action which may be taken at any annual or special meeting of the stockholders,
may be taken without a meeting, without prior notice and without a vote, if
written consent setting forth the action so taken is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize such action at a meeting at which all shares entitled to
vote thereon were present and voted.
Indemnification of Officers and Directors
The Restated Bylaws require AHC to indemnify its directors to the fullest
extent permitted by the DGCL and give AHC the power to indemnify its officers
and employees as set forth in the DGCL. The Restated Articles provide that a
director of AHC will not be personally liable to AHC or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of fiduciary duty as a director, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, or (iv) for any
transaction from which the director derived any improper personal benefit. Any
repeal or modification of the preceding sentence by the stockholders of AHC will
not adversely affect any rights or protection of a director of AHC existing at
the time of such repeal or modification.
The Axion Bylaws require Axion to indemnify its directors to the fullest
extent permitted by the DGCL and give Axion the power to indemnify its officers,
employees and other agents as set forth in the DGCL. The Axion Certificate of
Incorporation provides that a director of Axion will not be personally liable to
Axion or its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to Axion or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation or law,
(iii) under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived any improper personal benefit. Any repeal or modification of
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the preceding sentence by the stockholders of Axion will not adversely affect
any rights or protection of a director of Axion existing at the time of such
repeal or modification.
No Cumulative Voting
Neither the Restated Certificate nor the Axion Certificate of Incorporation
provides for cumulative voting.
Size and Classification of the Board of Directors
The AHC Board currently consists of three directors and is not classified.
The number of authorized directors may be modified from time to time by
amendment of the Restated Bylaws
The Axion Board currently consists of six directors and is not classified.
The number of authorized directors may be modified from time to time by
amendment of the Axion Bylaws.
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INDEX OF DEFINED TERMS
Term Page
- ---- ----
Acquired Assets..........................................................
Acquired Business........................................................
AHC......................................................................
AHC Board................................................................
AHC Companies............................................................
AHC Indemnified Parties..................................................
AHC Supply Agreement.....................................................
Assumed Liabilities......................................................
Average Value of BMS Common Stock........................................
Axion....................................................................
Axion Board..............................................................
Axion Common Stock.......................................................
Axion Indemnifying Parties...............................................
Axion Preferred Stock....................................................
Axion Subsidiaries.......................................................
BMOTN....................................................................
BMS......................................................................
BMS Common Stock.........................................................
BMS Indemnified Parties..................................................
BMS Stock Escrow Fund....................................................
BMS Sub..................................................................
Restated Bylaws..........................................................
Closing Date.............................................................
Code.....................................................................
Commission...............................................................
AHC Common Stock.........................................................
AHC Preferred Stock......................................................
Contributions............................................................
DGCL.....................................................................
Disposition..............................................................
Distribution.............................................................
Distribution Agreement...................................................
Distribution Date........................................................
Distribution Record Date.................................................
Document.................................................................
Effective Time...........................................................
Ernst & Young............................................................
Escrow...................................................................
Escrow Agent.............................................................
Escrow Agreement.........................................................
Escrowed Cash............................................................
Escrowed Cash Termination Date...........................................
Escrowed Property........................................................
Escrowed Shares..........................................................
Escrowed Stock Termination Date..........................................
Exchange Act.............................................................
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Term Page
- ---- ----
Filings..................................................................
Former Axion Stockholders................................................
Indemnifiable Losses.....................................................
Indemnification Agreement................................................
IRS......................................................................
License Agreement........................................................
Merger...................................................................
Merger Agreement.........................................................
Merger Consideration.....................................................
Named Officers...........................................................
1989 Plan................................................................
1995 Plan................................................................
Noncompetition Agreements................................................
OnCare...................................................................
OnCare Supply Agreement..................................................
OPUS.....................................................................
OPUS Station Assets......................................................
OPUS Station Business....................................................
OPUS Station Data........................................................
OPUS Station Liabilities.................................................
OPUS Sub.................................................................
OTN......................................................................
OTN Medstation...........................................................
OTNC.....................................................................
Partnership..............................................................
Partnership Agreement....................................................
Pending Claims...........................................................
Pro Forma Statements.....................................................
Proposed Legislation.....................................................
Proxy Statement/Prospectus...............................................
Required AHC Documents...................................................
Restated Certificate.....................................................
Retained Assets..........................................................
Retained Business........................................................
Retained Escrow Amount...................................................
Retained Escrow Shares...................................................
Retained Liabilities.....................................................
Retained Tax Liabilities.................................................
Securities Act...........................................................
Seller's Representative..................................................
Specified Stockholder....................................................
Surviving Corporation....................................................
Tax Matters Agreement....................................................
Taxes....................................................................
Time of Contributions
Time of Distribution.....................................................
Transitional Services Agreement..........................................
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AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION OF
AXION INC.
Axion Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is Axion Inc.
SECOND: The date on which the Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware is
July 30, 1987, under the name of Access Biotechnology, Inc.
THIRD: The Board of Directors of this Corporation, at a meeting
duly called and held, adopted resolutions amending and restating the Certificate
of Incorporation to read in full as follows:
ARTICLE I
The name of this Corporation is Axion Inc.
ARTICLE II
The address of the registered office of this Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
ARTICLE IV
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "Preferred Stock" and "Common
Stock." The total number of shares which the Corporation is authorized to issue
is Twenty-five Million (25,000,000) shares. Fifteen Million (15,000,000) shares
shall be designated Common Stock, par value one-tenth of one cent ($.001) per
share (the "Common Stock"), and Ten
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Million (10,000,000) shares shall be designated Preferred Stock, par value
one-tenth of one cent ($.001) per share (the "Preferred Stock").
ARTICLE V
The rights, preferences, privileges, restrictions and other
matters relating to the Three Million One Hundred Sixty-six Thousand Six Hundred
Sixty-Seven (3,166,667) shares of Preferred Stock hereinafter designated "Series
A Preferred Stock," the One Million Six Hundred Thousand (1,600,000) shares of
Preferred Stock hereinafter designated "Series B Preferred Stock," the Four
Hundred Twenty Thousand (420,000) shares of Preferred Stock hereinafter
designated "Series C Preferred Stock," the Seven Hundred Thousand (700,000)
shares of Preferred Stock hereinafter designated "Series D Preferred Stock," the
Nine Hundred Sixty-Five Thousand Five Hundred Seventeen (965,517) shares of
Preferred Stock hereinafter designated "Series E Preferred Stock," and the One
Million Five Hundred Thousand (1,500,000) shares of Preferred Stock hereinafter
designated "Series F Preferred Stock" are as follows:
A. Designation. Three Million One Hundred Sixty-Six Thousand Six
Hundred Sixty-Seven (3,166,667) shares of Preferred Stock shall be designated
"Series A Preferred Stock," One Million Six Hundred Thousand (1,600,000) shares
of Preferred Stock shall be designated "Series B Preferred Stock," Four Hundred
Twenty Thousand (420,000) shares of Preferred Stock shall be designated "Series
C Preferred Stock," Seven Hundred Thousand (700,000) shares of Preferred Stock
shall be designated "Series D Preferred Stock," Nine Hundred Sixty-Five Thousand
Five Hundred Seventeen (965,517) shares of Preferred Stock shall be designated
"Series E Preferred Stock," and One Million Five Hundred Thousand (1,500,000)
shares of Preferred Stock shall be designated "Series F Preferred Stock."
B. Liquidation Rights.
(1) In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of each
share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation legally available for distribution to its stockholders, whether from
capital, surplus or earnings, before any payment or setting apart for payment of
any amount shall be made in respect of the Common Stock, the amount of $.75 per
share of Series A Preferred Stock (the "Original Series A Issue Price"), $3.40
per share of Series B Preferred Stock (the "Original Series B Issue Price"),
$4.79 per share of Series C Preferred Stock, $5.60 per share of Series D
Preferred Stock (the "Original Series D Issue Price"), $7.25 per share of Series
E Preferred Stock (the "Original Series E Issue Price"), and $10.00 per share of
Series F Preferred Stock (the "Original Series F Issue Price"), plus, for each
such share, an amount equal to all declared but unpaid dividends thereon, if
any, to the date fixed for distribution to such
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series (such sum, as adjusted for stock splits, dividends, recapitalizations or
the like, the "Preference Amount" for such series), and the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock shall rank on a
parity as to receipt of their respective Preference Amounts upon the occurrence
of any such event. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock their
respective full preference amounts, then such holders shall share ratably in any
distribution of assets in proportion to the aggregate preferential amounts which
would be payable on the shares held by them if the Preference Amounts were paid
in full.
(2) After payment has been made to the holders of the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock of their respective full Preference Amounts, any remaining
assets or surplus funds of the Corporation shall be shared by and distributed
ratably among the holders of Common Stock and the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series E
Preferred Stock, treating the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series E Preferred Stock as if
they had been converted into Common Stock at the Conversion Price (as
hereinafter defined) then applicable to each such series; provided, however,
that such ratable distribution and sharing shall continue in effect only (i)
with respect to the Series C Preferred Stock, until such time as the holders of
the Series C Preferred Stock shall have received an aggregate of $7.00
(including amounts paid pursuant to paragraph B(1) in respect of the Preference
Amount for such series and as adjusted for stock splits, reverse stock splits,
reorganizations and the like occurring subsequent to the filing of this
Certificate of Incorporation) for each share of Common Stock into which the
Series C Preferred Stock would be convertible at the then applicable Conversion
Price, (ii) with respect to the Series A Preferred Stock, until such time as the
holders of the Series A Preferred Stock shall have received an aggregate of
$4.00 (including amounts paid pursuant to paragraph B(1) in respect of the
Preference Amount for such series and as adjusted for stock splits, reverse
stock splits, reorganizations and the like occurring subsequent to the filing of
this Certificate of Incorporation) for each share of Common Stock into which the
Series A Preferred Stock would be convertible at the Conversion Price then
applicable to such series, (iii) with respect to the Series B Preferred Stock,
until such time as the holders of the Series B Preferred Stock shall have
received an aggregate of $7.00 (including amounts paid pursuant to paragraph
B(1) in respect of the Preference Amount for such series and as adjusted for
stock splits, reverse stock splits, reorganizations and the like occurring
subsequent to the filing of this Certificate of Incorporation) for each share of
Common Stock into which the Series B Preferred Stock would be convertible at the
Conversion Price then applicable to such series, and (iv) with respect to the
Series E Preferred Stock, until such time as the holders of the Series E
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Preferred Stock shall have received an aggregate of $9.46 (including amounts
paid pursuant to paragraph B(1) in respect of the Preference Amount for such
series and as adjusted for stock splits, reverse stock splits, reorganizations
and the like occurring subsequent to the filing of this Certificate of
Incorporation) for each share of Common Stock into which the Series E Preferred
Stock would be convertible at the Conversion Price then applicable to such
series. After payment has been made to the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series E Preferred Stock
pursuant to this paragraph B(2), all remaining assets or surplus funds of the
Corporation shall be shared by and distributed ratably among the holders of the
Common Stock.
(3) For purposes of this Section B, a merger or
consolidation of the Corporation into or with another corporation, a sale,
transfer or other disposition of all or substantially all of the assets of the
Corporation or the effectuation by the Corporation of a transaction or series of
related transactions in which more than 50% of the voting power of the
Corporation is disposed of, shall, unless the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock, voting together as a class, elect
in writing otherwise, be deemed to be a liquidation, dissolution or winding up
of the Corporation.
(4) In the event the Corporation shall propose to take any
action regarding the liquidation, dissolution or winding up of the Corporation
which will involve the distribution of assets other than cash, the value of the
assets to be distributed to the holders of shares of the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock
shall be determined by the vote or written consent of the Board of Directors,
and such determination shall be binding upon the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock. Any securities to be distributed shall be valued as follows:
(a) Securities not subject to investment letter or other similar
restrictions on free marketability shall be valued as follows:
(i) if traded on a securities exchange, the value shall
be deemed to be the average of the security's closing prices on such exchange
over the thirty (30) day period ending three (3) days prior to the closing; and
(ii) if actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid prices over the thirty (30)
day period ending three (3) days prior to the closing; and
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(iii) if there is no active public market, the value
shall be the fair market value thereof as determined by the written consent or
vote of the Board of Directors, and such determination shall be binding upon the
holders of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock; and
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in (a)(i), (ii)
or (iii) to reflect the approximate fair market value thereof as determined by
the written consent or vote of the Board of Directors and such determination
shall be binding upon the holders of the affected series of Preferred Stock.
C. Dividends.
(1) Preferred Stock. The holders of the outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall be
entitled to receive in any fiscal year, when and as declared by the Board of
Directors, out of any assets at the time legally available therefor, dividends
in cash at the rate of $.075 per share, $.34 per share, $0.42 per share, $0.56
per share, $.725 per share and $1.00 per share, respectively (as appropriately
adjusted for stock splits, stock dividends, recapitalizations or the like), per
annum before any dividend is declared or paid on shares of Common Stock.
Dividends may be payable quarterly or otherwise as the Board of Directors may
from time to time determine. The right to such dividends on shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock shall not
be cumulative, and no right shall accrue to holders of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock by reason
of the fact that dividends on said shares are not declared in any prior year,
nor shall any undeclared or unpaid dividend bear or accrue interest.
(2) Common Stock. No distributions (as defined below) shall
be paid on the Common Stock until the holders of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock,
Series E Preferred Stock and Series F Preferred Stock then outstanding shall
have first received dividends at the dividend rates specified in paragraph C(1)
above. If, in any fiscal year, any cash or other distributions are declared by
the Board of Directors to be paid on the Common Stock as a class, then an
additional dividend shall be paid at the same time to the holders of the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock at the rate per share equal to the product of (x) such per
share
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dividend or other distribution on the Common Stock, multiplied by (y) the
number of shares of Common Stock into which each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock, respectively, is
then convertible.
(3) Distributions Defined. For purposes of this Section C,
unless the context requires otherwise, "distribution" shall mean the transfer of
cash or property without consideration, whether by way of dividend or otherwise,
payable other than in Common Stock or other securities of the Company, or the
purchase or redemption of shares of the Corporation (other than repurchases of
Common Stock held by employees of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase and other than redemptions in liquidation or dissolution of the
Corporation) for cash or property, including any such transfer, purchase, or
redemption by a subsidiary of the Corporation.
D. Conversion.
The holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock and the Series F Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(1) Right to Convert. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for Preferred Stock of that series, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Original
Issue Price for such series by the Conversion Price applicable to such series,
determined as hereinafter provided, at the time of conversion. The Original
Series C Issue Price shall be deemed to be $4.20. The Conversion Price for the
Series A Preferred Stock shall initially be Seventy-Five Cents ($.75) (as
adjusted from time to time, the "Series A Conversion Price"), the Conversion
Price for the Series B Preferred Stock shall initially be Three Dollars and
Forty Cents ($3.40) (as adjusted from time to time, the "Series B Conversion
Price"), the Conversion Price for the Series C Preferred Stock shall initially
be Four Dollars and Twenty Cents ($4.20) (as adjusted from time to time, the
"Series C Conversion Price"), the Conversion Price for the Series D Preferred
Stock shall initially be Five Dollars and Sixty Cents ($5.60) (as adjusted from
time to time, the "Series D Conversion Price"), the Conversion Price for the
Series E Preferred Stock shall initially be Seven Dollars and Twenty-Five Cents
($7.25) (as adjusted from time to time, the "Series E Conversion Price"), and
the Conversion Price for the Series F Preferred Stock shall initially be Ten
Dollars ($10.00) (as adjusted from time to time, the "Series F Conversion
Price"). Such initial Conversion Prices shall be subject to
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adjustment, in order to adjust the number of shares of Common Stock into which
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, respectively, are convertible, as hereinafter provided.
(2) Automatic Conversion. Each share of Series A Preferred
Stock shall automatically be converted into shares of Common Stock at the then
effective Series A Conversion price upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the offer and sale of Common Stock for the account of the Corporation to the
public at a public offering price of at least Four Dollars ($4.00) per share, as
presently constituted, and having an aggregate offering price to the public
resulting in net proceeds to the Company of not less than Ten Million Dollars
($10,000,000). Each share of Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall automatically be converted into shares of
Common Stock at the then effective applicable Conversion Price upon the closing
of a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act covering the offer and sale of
Common Stock for the account of the Corporation to the public at a public
offering price of at least Seven Dollars ($7.00) per share, as presently
constituted, and having an aggregate offering price to the public resulting in
net proceeds to the Company of not less than Ten Million Dollars ($10,000,000).
Each share of Series E Preferred Stock shall automatically be converted into
shares of Common Stock at the then effective Series E Conversion Price upon the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act, covering the offer
and sale of Common Stock for the account of the Corporation to the public at a
public offering price of at least Seven Dollars and Twenty-Five Cents ($7.25)
per share, as presently constituted, and having an aggregate offering price to
the public resulting in net proceeds to the Corporation of not less than Ten
Million Dollars ($10,000,000). Each share of Series F Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Series F Conversion Price upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act, covering the offer and sale of Common Stock for the account of
the Corporation to the public at a public offering price of at least Ten Dollars
($10.00) per share, as presently constituted, and having an aggregate offering
price to the public resulting in net proceeds to the Corporation of not less
than Ten Million Dollars ($10,000,000). In the event of the automatic conversion
of the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock
and/or the Series F Preferred Stock upon a public offering as aforesaid, persons
entitled to receive Common Stock issuable upon such conversion shall not be
deemed to have converted such Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock, and/or Series E
Preferred Stock and/or Series F Preferred Stock until immediately prior to the
closing of such sale of securities.
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(3) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock. In lieu of any fractional shares to
which the holder of shares of any series would otherwise be entitled (computing
the number of shares of Common Stock to which any holder is entitled on an
aggregate basis with respect to all shares to be converted by such holder at the
time of such conversion), the Corporation shall pay cash equal to such fraction
multiplied by the then effective Conversion Price for that series. Before any
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock shall be entitled to convert the same into full shares of Common Stock
pursuant to paragraph D(1) hereof, and before the Corporation shall be obligated
to issue certificates for shares of Common Stock upon the automatic conversion
of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock or Series F Preferred
Stock as set forth in paragraph D(2) hereof, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for the Preferred Stock of that series and
shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name or names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued (except that no such written notice of intent to
convert shall be necessary in the event of an automatic conversion pursuant to
paragraph D(2) hereof). The Corporation shall, as soon as practicable
thereafter, issue and deliver to such holder of Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock, or to their respective nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder or nominee shall be entitled as aforesaid, together with
cash in lieu of any fraction of a share. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or
Series F Preferred Stock to be converted (except that in the case of an
automatic conversion pursuant to paragraph D(2) hereof, such conversion shall be
deemed to have been made immediately prior to the closing of the offering
referred to in paragraph D(2)), and the person or persons entitled to receive
the shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
(4) Adjustment for Stock Splits, Dividends and Combinations.
If the Corporation shall at any time or from time to time effect a subdivision
of the outstanding Common Stock, or shall issue a dividend of Common Stock on
its outstanding Common Stock, the Conversion Price for any series of Preferred
Stock in effect immediately before that subdivision or dividend shall be
proportionately decreased. Conversely, if the Corporation shall combine the
outstanding shares of
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Common Stock, the Conversion Price for any series of Preferred Stock in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this paragraph D(4) shall become effective at the close of
business on the date the subdivision or combination becomes effective or on the
date on which the dividend is declared. Notwithstanding anything else in this
Certificate of Incorporation, the Conversion Price for any series of Preferred
Stock shall not be so reduced at such time if the amount of such reduction would
be an amount less than one cent ($0.01), but any such amount shall be carried
forward and deduction with respect thereto made at the time of and together with
any subsequent reduction which, together with such amount and any other amount
or amounts so carried forward, shall aggregate one cent ($0.01) or more.
(5) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Company other than shares of Common Stock, then, and in each such event,
provision shall be made so that the holders of Preferred Stock shall receive
upon conversion thereof, in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Company that they would
have received had their Preferred Stock been converted into Common Stock on the
date of such event, giving effect to all adjustments called for with respect to
such securities during the period from the date of such event to and including
the conversion date.
(6) Adjustment for Reclassification, Exchange and
Substitution. If the Common Stock issuable upon the conversion of any series of
Preferred Stock shall be changed into the same or different number of shares of
any class or series of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend, provided for above, or a merger, consolidation, sale of
assets or other transaction provided for in Section B above, or a dividend or
distribution provided for in Section C above), then and in each such event the
holder of each share of the affected series of Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other change by holders of the number of shares of Common
Stock into which such shares of Preferred Stock of that series might have been
converted immediately prior to such reorganization, reclassification or change,
all subject to further adjustment as provided herein.
(7) No Impairment. The Corporation will not, by amendment of
this Amended and Restated Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation but will at all
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times in good faith assist in the carrying out of all the provisions of this
Section D and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(8) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the respective Conversion Prices pursuant to
this Section D, the Corporation at its expense shall promptly compute such
adjustments or readjustments in accordance with the terms hereof and furnish to
each holder of shares of any series of Preferred Stock a certificate setting
forth such adjustment or readjustment as applicable to that series and showing
in detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Price as at the time in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of such holder's shares.
(9) Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, the Corporation shall mail to each
holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Series E Preferred Stock and Series F Preferred
Stock at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.
(10) Common Stock Reserved. The Corporation shall reserve
and keep available out of its authorized but unissued Common Stock such number
of shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred
Stock and the Series F Preferred Stock.
E. Voting Rights.
(1) In General. Except as set forth below, each holder
of shares of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock shall be entitled to the number of votes equal to the number of
shares of Common Stock into which that holder's shares of such series of
Preferred Stock could be converted on the record date for the vote or the date
of the solicitation of any written consent of stockholders and shall have voting
rights and powers equal to the voting rights and powers of the Common Stock.
Except as set forth below, each holder of Common Stock shall be entitled to one
vote per share of Common Stock held by such holder. The holder of each share of
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Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
shall be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation and shall vote with holders of the Common Stock upon
all matters submitted to a vote of stockholders. Fractional votes by the holders
of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
shall not be permitted, however, and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number.
(2) Voting for Election of Directors. So long as no
fewer than One Hundred Thousand (100,000) of the shares of Series A Preferred
Stock remain outstanding, the holders of the Series A Preferred Stock then
outstanding shall be entitled to elect two directors of the Corporation at each
election of directors. So long as no fewer than Five Hundred Thousand (500,000)
shares of Series B Preferred Stock remain outstanding, the holders of a majority
of the shares of Series B Preferred Stock then outstanding shall be entitled to
elect one director of the Corporation at each election of directors. So long as
no fewer than One Hundred Thousand (100,000) shares of Series C Preferred Stock
remain outstanding, the holders of a majority of the Series C Preferred Stock
then outstanding shall be entitled to elect one director of the Corporation at
each election of directors. The holders of a majority of the Common Stock
outstanding shall be entitled to elect the remaining directors of the
Corporation. Any vacancy occurring because of the death, resignation, or removal
of a director elected by the holders of Series A Preferred Stock, the holders of
the Series B Preferred Stock or the holders of the Series C Preferred Stock
shall be filled by the vote or written consent of the holders of a majority of
the shares of that series or, in the absence of such action by such holders, by
action of the remaining directors then in office. Any vacancy occurring because
of the death, resignation or removal of a director elected by the holders of
outstanding Common Stock shall be filled by the vote or written consent of the
holders of a majority of the outstanding shares of or, in the absence of such
action by such holders, by action of the remaining directors then in office.
F. Covenants. So long as no fewer than an aggregate of Five
Hundred Thousand (500,000) shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock or Series F Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least fifty percent (50%) of
the then outstanding shares of Preferred Stock (excluding from such vote the
shares of any series of Preferred Stock of which there are fewer than 100,000
shares outstanding), voting together as a single class:
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(1) amend or repeal any provision of, or add any provision
to, the Corporation's Amended and Restated Certificate of Incorporation or
Bylaws if such action would adversely alter or change the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of the
Preferred Stock;
(2) create any new series or class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Series E Preferred Stock or the Series F Preferred Stock;
(3) increase the authorized number of shares of Preferred
Stock;
(4) be or become a party to, or initiate or otherwise enter
into any transaction that would result in a reorganization of the Corporation,
or the merger or consolidation of the Corporation with or into another
corporation, or the effectuation by the Corporation of a transaction or series
of transactions in which more than fifty percent (50%) of the voting power of
the Corporation is disposed of, or the sale of all or substantially all of the
assets of the Corporation;
(5) initiate any reclassification or recapitalization of the
outstanding capital stock of the Corporation that would result in a reduction or
limitation of the preferences granted to the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock, the Series E Preferred Stock or the Series F Preferred Stock; or
(6) increase the number of authorized directors of the
Corporation's Board of Directors above seven (7).
G. Residual Rights. All rights accruing to the outstanding shares
of the Corporation not otherwise expressly provided for in this Amended and
Restated Certificate of Incorporation or any subsequent Certificate of
Designation shall be vested in the Common Stock.
ARTICLE VI
A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
any improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after approval by the stockholders of this
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Article to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
ARTICLE VII
To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of the Corporation (and any other persons to which Delaware
law permits the Corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, vote of stockholders
or disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the Delaware General
Corporation Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
ARTICLE VIII
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
ARTICLE IX
The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws; provided, however, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors; and provided,
further, that no amendment or supplement to the Bylaws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement adopted by the
stockholders.
* * *
FOURTH: That thereafter, pursuant to resolution of the Board of
Directors, the Amended and Restated Certificate of Incorporation was submitted
to the stockholders for their approval, which approval was given by written
consent of a majority of the stockholders pursuant to Section 228 of the General
Corporation Law of the State of Delaware.
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FIFTH: That prompt written notice was duly given pursuant to
Section 228 of the General Corporation Law of the State of Delaware to those
stockholders who did not approve the Amended and Restated Certificate of
Incorporation by written consent.
SIXTH: That said Amended and Restated Certificate of
Incorporation was duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Axion Inc. has caused this Amended and
Restated Certificate of Incorporation to be signed by its President and
attested to by its Secretary this 28th day of November, 1994.
AXION INC.
GARRETT J. ROPER
------------------------------
Garrett J. Roper
Chief Financial Officer
ATTEST:
ROBERT V. GUNDERSON, JR.
- ---------------------------
Robert V. Gunderson, Jr.
Secretary
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CERTIFICATE OF MERGER
Pursuant to Section 251 of the General Corporation Law of the
State of Delaware, Axion Inc., a Delaware corporation (the "Surviving
Corporation"), for the purpose of effecting the merger (the "Merger") of OnCare
Information Inc., a Delaware corporation and the wholly-owned subsidiary of the
Surviving Corporation (the "Merged Corporation"), with and into the Surviving
Corporation, does hereby certify that:
FIRST: The names and states of incorporation of the constituent
corporations are as follows:
Axion Inc., a Delaware corporation, and
OnCare Information Inc., a Delaware corporation.
SECOND:An Agreement and Plan of Merger has been approved,
adopted, certified, executed and acknowledged by the Surviving Corporation and
the Merged Corporation in accordance with the provisions of Section 251 of the
Delaware General Corporation Law.
THIRD: The name of the surviving corporation is Axion Inc.
FOURTH:The Certificate of Incorporation of the Surviving
Corporation, which shall be the Certificate of Incorporation of the surviving
corporation, is hereby amended as follows:
1. In Article V, Section D, Subsection (2), add "(a)" before the
word "Each" and after the heading "Automatic Conversion."
2. Add the following text after Article V, Section D, Subsection
(2) and before Article V, Section D, Subsection (3):
"(b) Each share of Preferred Stock shall automatically
be converted into shares of Common Stock at the
applicable Conversion Price then in effect upon the
affirmative vote or written consent of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of
the Preferred Stock then outstanding, voting or
consenting as a single class on an as-if-converted
basis."
3. Add the following text after Article V, Section C, Subsection
(3) and before Article V, Section D:
"(4) Waiver. The holders of the outstanding Series A
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock can waive
any dividend preference that such holders may be
entitled to receive under this Section C upon the
affirmative vote or written consent of the holders of
at least sixty-six and two-thirds percent (66-2/3%) of
the Preferred Stock then outstanding, voting or
consenting as a single class on an as-if-converted
basis."
FIFTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the Surviving Corporation at 395 Oyster Point
Boulevard, Suite 405, South San
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Francisco, California 94080.
SIXTH: A copy of the Agreement and Plan of Merger will be furnished by
the Surviving Corporation on request and without cost to any stockholder of the
Merged Corporation or the Surviving Corporation.
IN WITNESS WHEREOF, the Surviving Corporation has caused this
certificate to be signed by Garrett J. Roper, its Senior Vice President and
Chief Financial Officer, this 21st day of December 1995.
AXION INC.
By: GARRETT J. ROPER
----------------------------------------
Garrett J. Roper,
Senior Vice President and Chief Financial
Officer
2
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BYLAWS
OF
AXION PHARMACEUTICALS, INC.
AS AMENDED AND RESTATED
ON JUNE 29, 1992
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<PAGE>
BYLAWS
OF
AXION PHARMACEUTICALS, INC.
(a Delaware corporation)
ARTICLE I
Offices
Section 1. Registered Office. The registered office of the
Corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle.
Section 2. Other Offices. The Corporation shall also have and
maintain an office or principal place of business in the State of California, at
such location as may be fixed by the Board of Directors, or at such other place
as may be fixed by the Board of Directors, and may also have offices at such
other places, both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
Corporate Seal
Section 3. Corporate Seal. The Corporation shall have no
corporate seal.
ARTICLE III
Stockholders' Meetings
Section 4. Place of Meetings. Meetings of the stockholders of the
Corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the Corporation required to be
maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting. The annual meeting of the stockholders
of the Corporation, commencing with the year 1988, for the purpose of election
of Directors and for such other business as may lawfully come before it shall be
held on such date and at such time as may be designated from time to time by the
Board of Directors.
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Section 6. Special Meetings. Special meetings of the stockholders
of the Corporation may be called at any time, for any purpose or purposes, only
by the President or the Board of Directors.
Section 7. Notice of Meetings. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each stockholder entitled to vote at such
meeting, such notice to specify the place, date and hour and purpose or purposes
of the meeting. Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, signed by the person entitled to notice
thereof, either before or after such meeting, and will be waived by any
stockholder by his attendance thereat in person or by proxy, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects as
if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. Any shares, the voting of
which at said meeting has been enjoined, or which for any reason cannot be
lawfully voted at such meeting, shall not be counted to determine a quorum at
such meeting. In the absence of a quorum any meeting of stockholders may be
adjourned, from time to time, without notice other than announcement at the
meeting, by vote of the holders of a majority of the shares represented thereat,
but no other business shall be transacted at such meeting. At any adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted as originally noticed. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, all action taken by the
holders of a majority of the voting power represented at any meeting at which a
quorum is present shall be valid and binding upon the Corporation. Where a
separate vote by a class or classes is required, a majority of the outstanding
shares of such class or classes, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter and the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class.
Section 9. Adjournment and Notice of Adjourned Meetings. Any
meeting of stockholders, whether annual or special, may be adjourned from time
to time by the vote of a majority of the shares, the holders of which are
present either in person or by proxy. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after
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the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting.
Section 10. Voting Rights. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the Corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a written proxy executed by
such person or his duly authorized agent, which proxy shall be filed with the
Secretary at or before the meeting at which it is to be used. An agent so
appointed need not be a stockholder. No proxy shall be voted after three (3)
years from its date of creation unless the proxy provides for a longer period.
All elections of Directors shall be by written ballot, unless otherwise provided
in the Certificate of Incorporation.
Section 11. Joint Owners of Stock. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this subSection (c) shall be a majority or even split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 13. Action without Meeting. Until such time as the
Corporation shall be subject to the requirements of the Securities Exchange Act
of 1934, as amended, unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior
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notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the corporation by delivery to
its registered office in this State, its principal place of business, or an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder or member who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section to the corporation, written consents signed by a
sufficient number of holders or members to take action are delivered to the
corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing. After such time as the Corporation shall be subject to the
requirements of the Securities Exchange Act of 1934, as amended, the actions
described in the first sentence hereof shall only be taken at a meeting.
Section 14. Organization. At every meeting of stockholders, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or, if the President is absent, the most senior Vice
President present, or in the absence of any such officer, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
ARTICLE IV
Directors
Section 15. Number and Term of Office. The number of Directors
which shall constitute the whole of the Board of Directors shall be six (6). The
number of authorized Directors may be modified from time to time by amendment of
this Bylaw in accordance with the provisions of Section 43 hereof. The Directors
shall be elected by the stockholders at their annual meeting as provided for in
Section E of the Company's Restated Certificate of Incorporation. The directors
shall hold office until the next annual meeting and until their successors shall
be duly elected and qualified, or until their death, resignation or removal.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the Directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws.
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Section 16. Powers. The powers of the Corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the Certificate
of Incorporation.
Section 17. Vacancies. Unless otherwise provided in the
Certificate of Incorporation, vacancies and newly created directorships
resulting from any increase in the authorized number of Directors may be filled
by a majority of the Directors then in office, although less than a quorum, or
by a sole remaining Director, and each Director so elected shall hold office for
the unexpired portion of the term of the Director whose place shall be vacant
and until his successor shall have been duly elected and qualified. A vacancy in
the Board of Directors shall be deemed to exist under this Section 17 in the
case of the death, removal or resignation of any Director, or if the
stockholders fail at any meeting of stockholders at which directors are to be
elected (including any meeting referred to in Section 19 below) to elect the
number of Directors therein constituting the whole Board of Directors.
Section 18. Resignation. Any Director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more Directors shall resign from the Board of Directors, effective at a
future date, a majority of the Directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
Section 19. Removal. At a special meeting of stockholders called
for the purpose in the manner hereinabove provided, the Board of Directors, or
any individual Director, may be removed from office, with or without cause, and
a new Director or Directors elected by a vote of stockholders holding a majority
of the outstanding shares entitled to vote at an election of Directors.
Section 20. Meetings.
(a) Annual Meetings. The annual meeting of the Board of
Directors shall be held immediately after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) Regular Meetings. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held at the office
of the Corporation required to be maintained pursuant to Section 2 hereof.
Unless otherwise restricted by the Certificate of Incorporation, regular
meetings of the Board of Directors may also be held at any place within or
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without the State of Delaware which has been designated by resolution of the
Board of Directors or the written consent of all Directors.
(c) Special Meetings. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board or the President or any Vice President or
the Secretary of the Corporation or any two (2) Directors.
(d) Telephone Meetings. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the date, time and
place of all meetings of the Board of Directors, other than regular meetings
held pursuant to Section 20(a) or (b) above shall be delivered personally,
orally or in writing, or by telephone or telegraph to each Director, at least
forty-eight (48) hours before the meeting, or sent in writing to each Director
by first-class mail, charges prepaid, at least four (4) days before the meeting.
Such notice may be given by the Secretary of the Corporation or by the person or
persons who called a meeting. Such notice need not specify the purpose of the
meeting. Notice of any Notice of any meeting may be waived in writing at any
time before or after the meeting and will be waived by any Director by
attendance thereat, except when the Director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
(f) Waiver of Notice. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however called
or noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the Directors not present shall sign a written
waiver of notice, or a consent to holding such meeting, or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
Corporate records or made a part of the minutes of the meeting.
Section 21. Quorum and Voting.
(a) Quorum. Unless the Certificate of Incorporation
requires a greater number a quorum of the Board of Directors shall consist of a
majority of the exact number of Directors fixed from time to time in accordance
with Section 15 of these Bylaws; provided, however, at any meeting whether a
quorum be present or otherwise, a majority of the Directors present may adjourn
from time to time until the time fixed for the next regular meeting of the Board
of Directors, without notice other than by announcement at the meeting.
(b) Majority Vote. At each meeting of the Board of
Directors at which a quorum is present all questions and business shall be
determined by a vote of a majority of the
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Directors present, unless a different vote be required by law, the Certificate
of Incorporation or these Bylaws.
Section 22. Action without Meeting. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and such
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 23. Fees and Compensation. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, for attendance at each regular or
special meeting of the Board of Directors or any meeting of a committee of
directors. Nothing herein contained shall be construed to preclude any Director
from serving the Corporation in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation therefor.
Section 24. Committees.
(a) Executive Committee. The Board of Directors may by
resolution passed by a majority of the whole Board of Directors, appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
specifically granted by the Board of Directors, shall have and may exercise when
the Board of Directors is not in session all powers of the Board of Directors in
the management of the business and affairs of the Corporation, including,
without limitation, the power and authority to declare a dividend or to
authorize the issuance of stock, except such committee shall not have the power
or authority to amend the Certificate of Incorporation, to adopt an agreement of
merger or consolidation, to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
to recommend to the stockholders of the Corporation a dissolution of the
Corporation or a revocation of a dissolution or to amend these Bylaws.
(b) Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, from time to
time appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors, and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) Term. The members of all committees of the Board of
Directors shall serve a term coexistent with that of the Board of Directors
which shall have appointed such committee. The Board of Directors, subject to
the provisions of subsections (a) or (b) of this Section 24, may at any time
increase or decrease the number of members of a committee or
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terminate the existence of a committee. The membership of a committee member
shall terminate on the date of his death or voluntary resignation. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more Directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 24 shall be held at such times and
places as are determined by the Board of Directors, or by any such committee,
and when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at the principal office of the
Corporation required to be maintained pursuant to Section 2 hereof, or at any
place which has been designated from time to time by resolution of such
committee or by written consent of all members thereof, and may be called by any
Director who is a member of such committee, upon written notice to the members
of such committee of the time and place of such special meeting given in the
manner provided for the giving of written notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors.
Notice of any special meeting of any committee may be waived in writing at any
time before or after the meeting and will be waived by any Director by
attendance thereat, except when the Director attends such special meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. A majority of the authorized number of members of any such committee
shall constitute a quorum for the transaction of business, and the act of a
majority of those present at any meeting at which a quorum is present shall be
the act of such committee.
Section 25. Organization. At every meeting of the Directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the Directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
Officers
Section 26. Officers Designated. The officers of the corporation
shall be the President, the Secretary and the Chief Financial Officer, all of
whom shall be elected at the
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annual meeting of the Board of Directors. The Board of Directors may also
appoint a Chairman of the Board of Directors, and/or one or more Vice Presidents
or Assistant Secretaries, and such other officers and agents with such powers
and duties as it shall deem necessary. The order of the seniority of the Vice
Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem appropriate.
Any one person may hold any number of offices of the corporation at any one time
unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the corporation shall be fixed by or in the
manner designated by the Board of Directors.
Section 27. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board of
Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The
Chairman of the Board of Directors, when present, shall preside at all meetings
of the stockholders and the Board of Directors. The Chairman of the Board of
Directors shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(c) Duties of President. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
The President shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
Corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time.
(d) Duties of Vice Presidents. The Vice Presidents, in
the order of their seniority, may assume and perform the duties of the President
in the absence or disability of the President or whenever the office of
President is vacant. The Vice Presidents shall perform other duties commonly
incident to their office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(e) Duties of Secretary. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors, and shall record all
acts and proceedings thereof in the minute book of the Corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders, and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other duties
given him in these Bylaws and other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
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The President may direct any Assistant Secretary to assume and perform the
duties of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
Corporation in a thorough and proper manner, and shall render statements of the
financial affairs of the Corporation in such form and as often as required by
the Board of Directors or the President. The Chief Financial Officer, subject to
the order of the Board of Directors, shall have the custody of all funds and
securities of the Corporation. The Chief Financial Officer shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct any Assistant Chief
Financial Officer to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Assistant Chief Financial Officer shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
(g) Other Officers. The Board of Directors may delegate
to any officer of the Corporation the power to choose other officers and to
prescribe their respective duties and powers.
Section 28. Resignations. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective.
Section 29. Removal. Any officer may be removed from office at
any time, either with or without cause, by the vote or written consent of a
majority of the Directors in office at the time, or by any committee or superior
officers upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
Execution of Corporate Instruments and Voting
of Securities Owned by the Corporation
Section 30. Execution of Corporate Instruments. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on behalf
of the Corporation any corporate instrument or document, or to sign on behalf of
the Corporation the corporate name without limitation, or to enter into
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contracts on behalf of the Corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding upon the
Corporation.
Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, promissory notes, deeds of trust,
mortgages and other evidences of indebtedness of the Corporation, and other
corporate instruments or documents requiring the corporate seal, and
certificates of shares of stock owned by the Corporation, shall be executed,
signed or endorsed by the Chairman of the Board of Directors, the President or
any Vice President, and by the Secretary or Treasurer or any Assistant Secretary
or Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on
funds to the credit of the Corporation or in special accounts of the Corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
Section 31. Voting of Securities Owned by the Corporation. All
stock and other securities of other corporations owned or held by the
Corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the absence
of such authorization, by the Chairman of the Board of Directors, the President,
or any Vice President.
ARTICLE VII
Shares of Stock
Section 32. Form and Execution of Certificates. Certificates for
the shares of stock of the Corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of stock
in the Corporation shall be entitled to have a certificate signed by or in the
name of the Corporation by the Chairman of the Board of Directors, or the
President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the Corporation. Where such certificate is countersigned by a transfer
agent other than the Corporation or its employee, or by a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the designations,
preferences, limitations, restrictions on transfer and relative rights of the
shares authorized to be issued.
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Section 33. Lost Certificates. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore issued
by the Corporation alleged to have been lost, stolen, or destroyed, upon the
making of an affidavit of that fact by the person claiming the certificate of
stock to be lost, stolen, or destroyed. The Corporation may require, as a
condition precedent to the issuance of a new certificate or certificates, the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the Corporation a surety bond in such form and amount as it may
direct as indemnity against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 34. Transfers. Transfers of record of shares of stock of
the Corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares.
Section 35. Fixing Record Dates.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the board of directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, and which date shall not be more than ten days after
the date upon which the resolution fixing the record date is adopted by the
board of directors. If no record date has been fixed by the board of directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the board of
directors is required by this chapter, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of directors
is required by this chapter, the record date for determining stockholders
entitled to consent to
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corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
Section 36. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VIII
Other Securities of the Corporation
Section 37. Execution of Other Securities. All bonds, debentures
and other corporate securities of the Corporation, other than stock
certificates, may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signatures of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining to
any such bond, debenture or other corporate security, authenticated by a trustee
as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the
Corporation or such other person as may be authorized by the Board of Directors,
or bear imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the Corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the Corporation.
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ARTICLE IX
Dividends
Section 38. Declaration of Dividends. Dividends upon the capital
stock of the Corporation, subject to the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors pursuant to law
at any regular or special meeting. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 39. Dividend Reserve. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the Board of Directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interests of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
ARTICLE X
Fiscal Year
Section 40. Fiscal Year. Unless otherwise fixed by resolution of
the Board of Directors, the fiscal year of the Corporation shall end on the 31st
day of December.
ARTICLE XI
Indemnification
Section 41. Indemnification of Officers, Directors, Employees
and Other Agents.
(a) Directors. The Corporation shall indemnify its
directors to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of alleged
occurrences of actions or omissions preceding any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide prior
to such amendment).
(b) Officers, Employees and Other Agents. The Corporation
shall have power to indemnify its officers, employees and other agents as set
forth in the Delaware General Corporation Law.
(c) Good Faith.
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(1) For purposes of any determination under this Bylaw, a
Director shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, to
have had no reasonable cause to believe that his conduct was unlawful,
if his action is based on the records or books of account of the
Corporation or another enterprise, or on information supplied to him by
the officers of the Corporation or another enterprise in the course of
their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to
the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable
care by the Corporation or another enterprise.
(2) The termination of any proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal proceeding, that he had reasonable cause to
believe that his conduct was unlawful.
(3) The provisions of this paragraph (c) shall not be deemed to
be exclusive or to limit in any way the circumstances in which a person
may be deemed to have met the applicable standard of conduct set forth
by the Delaware General Corporation Law.
(d) Expenses. The Corporation shall advance, prior to the
final disposition of any proceeding, promptly following request therefor, all
expenses incurred by any Director in connection with such proceeding upon
receipt of an undertaking by or on behalf of such person to repay said amounts
if it should be determined ultimately that such person is not entitled to be
indemnified under this Bylaw or otherwise.
(e) Enforcement. Without the necessity of entering into
an express contract, all rights to indemnification and advances under this Bylaw
shall be deemed to be constitutional rights and be effective to the same extent
and as if provided for in a contract between the Corporation and the Director
who serves in such capacity at any time while this Bylaw and other relevant
provisions of the Delaware General Corporation Law and other applicable law, if
any, are in effect. Any right to indemnification or advances granted by this
Bylaw to a Director shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. It shall
be a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in connection with any proceeding in advance of its final
disposition when the required undertaking has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify the
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claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that claimant has not met the applicable standard of conduct.
(f) Non-Exclusivity of Rights. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The Corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent permitted by the Delaware General Corporation
Law.
(g) Survival of Rights. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
Director, officer, employee or other agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(h) Insurance. To the fullest extent permitted by the
Delaware General Corporation Law, the Corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
(i) Amendments. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the Corporation.
(j) Savings Clause. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director to the full extent
permitted by any applicable portion of this Bylaw that shall not have been
invalidated, or by any other applicable law.
(k) Certain Definitions. For the purposes of this Bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly construed
and shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement and appeal of any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
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(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection
with any proceeding.
(3) The term "the Corporation" shall include, in
addition to the resulting corporation, any constituent Corporation
(including any constituent of a constituent) absorbed in a consolidation
or merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(4) References to a "Director," "officer,"
"employee," or "agent" of the Corporation shall include, without
limitation, situations where such person is serving at the request of
the Corporation as a Director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust or other
enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include
any service as a Director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such Director,
officer, employee, or agent with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the Corporation" as referred to in this Bylaw.
ARTICLE XII
Notices
Section 42. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, personally or timely and duly deposited in the United States
mail, postage prepaid, and addressed to his last known post office address as
shown by the stock record of the Corporation or its transfer agent.
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(b) Notice to Directors. Any notice required to be given to any
Director may be given by the method stated in subsection (e) of Section 20 of
these Bylaws except that such notice other than one which is delivered
personally shall be sent to such address as such Director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such Director.
(c) Address Unknown. If no address of a stockholder or Director
be known, notice may be sent to the office of the Corporation required to be
maintained pursuant to Section 2 hereof.
(d) Affidavit of Mailing. An affidavit of mailing, executed by a
duly authorized and competent employee of the Corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
Director or Directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall be conclusive evidence of the
statements therein contained.
(e) Time Notices Deemed Given. All notices given by mail, as
above provided, shall be deemed to have been given as at the time of mailing and
all notices given by telegram shall be deemed to have been given as at the
sending time recorded by the telegraph company transmitting the notices.
(f) Methods of Notice. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(g) Failure to Receive Notice. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any Director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such Director to receive such
notice.
(h) Notice to Person with Whom Communication Is Unlawful.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the Corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
Corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
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ARTICLE XIII
Amendments
Section 43. Amendments. These Bylaws may be repealed, altered or
amended or new Bylaws adopted by the stockholders. In addition to any vote of
the holders of any class or series of stock of this Corporation required by law
or by these Bylaws, the affirmative vote of the holders of at least 66-2/3
percent of the voting power of all of the then-outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be required to adopt, amend
or repeal any provisions of the Bylaws of the Corporation. The Board of
Directors shall also have the authority, if such authority is conferred upon the
Board of Directors by the Certificate of Incorporation, to repeal, alter or
amend these Bylaws or adopt new Bylaws (including, without limitation, the
amendment of any Bylaw setting forth the number of Directors who shall
constitute the whole Board of Directors) subject to the power of the
stockholders to change or repeal such Bylaws and provided that the Board of
Directors shall not make or alter any Bylaws fixing the qualifications,
classifications, term of office or compensation of Directors.
Section 44. Right of First Refusal. No stockholder shall sell,
assign, pledge, or in any manner transfer any of the shares of Common Stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this Bylaw:
(a) Before any shares of Common Stock may be sold or
transferred (including transfer by operation of law), such Common Stock shall
first be offered to the Corporation in the following manner:
(i) The stockholder shall deliver a notice
("Notice") to the Corporation stating (A) his bona fide intention to
sell or transfer such Common Stock, (B) the number of shares of such
Common Stock to be sold or transferred, (C) the price, if any, for which
he proposes to sell or transfer such Common Stock, and (D) the name of
the proposed purchaser or transferee.
(ii) Within thirty (30) days after receipt of the
Notice, the Corporation (or its assignee) may elect to purchase any
shares of the Common Stock to which the Notice refers, at the price per
share specified in the Notice or, if no price is specified therein, at
the fair market value thereof as determined by the Board of Directors in
good faith.
(iii) If all shares of the Common Stock to which the
Notice refers are not elected to be purchased, as provided in
subparagraph (a)(ii) hereof, the stockholder may sell or transfer the
remaining shares of the Common Stock to the purchaser or transferee
named in the Notice at, in the case of a sale, the price specified in
the Notice or at a higher price or, in the case of another type of
transfer, on the terms and conditions specified in the Notice; provided,
that such sale or transfer is consummated
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within sixty (60) days of the date of said Notice to the Corporation;
and provided, further, that any such sale is in accordance with all the
terms and conditions hereof. If the stockholder does not consummate the
sale or transfer within such sixty (60) day period, the right provided
hereby shall be deemed to be revived with respect to such shares of
Common Stock and no sale or transfer shall be effected without first
offering the Common Stock in accordance herewith.
(iv) The stockholder agrees to cooperate
affirmatively with the Corporation, to the extent reasonably requested
by the Corporation, to enforce the rights and obligations pursuant to
this Section 44.
(b) The stockholder's obligations under this Section 44
shall terminate upon the earlier of (i) September 30, 1995, or (ii) the first
sale of the Corporation's Common Stock to the public in an underwritten offering
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act").
(c) The provisions of this Section 44 shall not apply to
a transfer of any shares of Common Stock by the Stockholder, either during the
stockholder's lifetime or on death by will or intestacy, to the stockholder's
ancestors, descendants or spouse, or any custodian or trustee for the
stockholder or stockholder's ancestors, descendants or spouse; provided,
however, that in each case, the transferee shall receive and hold such shares
subject to the provisions of this Section 44 and there shall be no further
transfer of such shares except in accordance herewith.
(d) The certificates representing shares of Common Stock
of the Corporation shall bear on their face a legend in substantially the
following form so long as the foregoing right of first refusal remains in
effect:
"The shares represented by this certificate are
subject to a right of first refusal option in favor of the
corporation or its assignee, as provided in the bylaws of
the corporation."
(e) The foregoing right of first refusal shall only apply
to shares of the Company's Common Stock other than any shares of Common Stock
issuable upon the conversion of the Preferred Stock.
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[Letterhead of]
CRAVATH, SWAINE & MOORE
August 2, 1996
Agreement and Plan of Merger
Dated as of August 2, 1996,
Among Bristol-Myers Squibb Company,
OTN Acquisition Sub Inc. and Axion Inc.
Dear Sirs:
We have acted as counsel for Bristol-Myers Squibb Company, a
Delaware corporation ("BMS"), and OTN Acquisition Sub Inc., a Delaware
corporation and wholly owned subsidiary of BMS ("BMS Sub"), in connection with
the proposed merger (the "Merger") of BMS Sub with and into Axion Inc., a
Delaware corporation (the "Company"), pursuant to an Agreement and Plan of
Merger dated as of August 2, 1996 (the "Merger Agreement"), among BMS, BMS Sub
and the Company, under which each issued and outstanding share of common stock
of the Company (other than shares owned directly by BMS or the Company) will be
exchanged solely for common stock of BMS.
In that connection you have requested our opinion regarding
certain Federal income tax consequences of the Merger. In providing our opinion,
we have examined the Merger Agreement, the Form S-4 prepared by BMS and the
Company (the "Form S-4") and such other documents and corporate records as we
have deemed necessary or appropriate for purposes of our opinion. In addition,
we have assumed that (i) the Merger will be consummated in accordance with the
provisions of the Merger Agreement and the Form S-4, (ii) the statements
concerning the Merger and the Contributions and the Distribution (as defined in
the Merger Agreement) and related transactions set forth in the documents
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2
referred to in Section 3.01 of the Merger Agreement are accurate and complete,
(iii) the representations made to us by BMS and the Company in letters dated the
date hereof and attached as Exhibits A and B hereto and the representations of
certain stockholders of the Company in their respective letters to us in the
form of Exhibit C hereto and delivered to us for purposes of this opinion
(collectively, the "Representation Letters") are accurate and complete and will
remain accurate and complete at all times up to and including the Effective Time
(as defined in the Merger Agreement), (iv) any representations made in the
Representation Letters therein "to the best of knowledge of" or similarly
qualified are correct without such qualification and (v) as to all matters in
which a person or entity has represented in any of the Representation Letters
that such person or entity either is not a party to, does not have, or is not
aware of any plan, intention, understanding or agreement to take an action,
there is in fact no such plan, intention, understanding or agreement as of the
date such representation is made and at all times up to and including the
Effective Time of the Merger and such action will not be taken. If any of such
assumptions are untrue, for any reason, our opinions as expressed below may be
adversely affected and may not be relied upon.
Based upon the foregoing, for Federal income tax purposes, we are
of the opinion that:
(i) the Merger will constitute a reorganization within the
meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended (the "Code"), and BMS, BMS Sub and the Company will each be a
party to such reorganization within the meaning of Section 368(b) of the
Code; and
(ii) no gain or loss will be recognized by BMS, BMS Sub or the
Company in the Merger.
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3
This opinion is being provided solely for the benefit of BMS and
BMS Sub. No other person or party shall be entitled to rely on this opinion.
Very truly yours,
Bristol-Myers Squibb Company
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Exhibit 8.2
[Letterhead of]
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN
Board of Directors
Axion Inc.
1111 Boyhill Drive, Suite 125 August 2, 1996
San Bruno, California 94066
Agreement and Plan of Merger
Dated as of August 2, 1996,
Among Bristol-Myers Squibb Company,
OTN Acquisition Sub Inc. and Axion Inc.
Dear Sirs:
We have acted as counsel for Axion Inc., a Delaware corporation (the
"Company"), in connection with the proposed merger (the "Merger") of OTN
Acquisition Sub Inc. ("BMS Sub"), a Delaware corporation and wholly owned
subsidiary of Bristol-Myers Squibb Company, a Delaware corporation ("BMS"), with
and into the Company pursuant to an Agreement and Plan of Merger dated as of
August 2, 1996 (the "Merger Agreement"), among BMS, BMS Sub and the Company,
under which each issued and outstanding share of common stock of the Company
(other than shares owned directly by BMS or the Company) will be exchanged
solely for common stock of BMS.
In that connection you have requested our opinion regarding the material
Federal income tax consequences of the Merger. In providing our opinion, we have
examined the Merger Agreement, the Form S-4 prepared by BMS and the Company (the
"Form S-4") and such other documents and corporate records as we have deemed
necessary or appropriate for purposes of our opinion. In addition, we have
assumed that (i) the Merger will be consummated in accordance with the
provisions of the Merger Agreement and the Form S-4, (ii) the statements
concerning the Merger and the other Transactions (as defined in the Merger
Agreement) in the documents relating to the Transactions are accurate and
complete and (iii) the representations made to us by BMS and
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2
the Company in letters dated the date hereof and attached as Exhibits A and B
hereto and the representations of certain shareholders of the Company in their
respective letters to us in the form of Exhibit C hereto and delivered to us for
purposes of this opinion are accurate and complete and that any representations
made therein "to the best of knowledge of" or similarly qualified are correct
without such qualification and that as to all matters in which a person or
entity has represented that such person or entity either is not a party to, does
not have, or is not aware of any plan, intention, understanding or agreement to
take an action, there is in fact no such plan, intention, understanding or
agreement and such action will not be taken.
Based upon the foregoing, for Federal income tax purposes, we are of the
opinion that:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), and BMS, BMS Sub and the Company will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; and
(ii) no gain or loss will be recognized by BMS, BMS Sub or the Company
in the Merger.
This opinion is being provided solely for the benefit of the Company. No
other person or party shall be entitled to rely on this opinion.
Very truly yours,
<PAGE>
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[Letterhead of Ernst & Young LLP]
August 2, 1996
Board of Directors Board of Directors
Axion Inc. and Axion HealthCare Inc. Bristol-Myers Squibb Company
1111 Bayhill Drive, Suite 125 345 Park Avenue
San Bruno, California 94066 New York, New York 10154
Dear Board Members:
This letter sets forth our opinion concerning certain Federal income tax
consequences that would arise from the pro rata distribution by Axion Inc.
("Distributing") to its shareholders of the stock of Axion HealthCare Inc.
("Controlled"), followed by the acquisition of the stock of Distributing by
Bristol-Myers Squibb Company ("Acquiring") solely in exchange for Acquiring
stock (the "Acquisition"). Such transactions, along with the other transactions
described herein, are hereinafter referred to as the "Proposed Transaction."
In rendering this opinion, we have relied upon the facts, summarized below, as
they have been presented to us orally and in the following documents (the
"Documents"):
1. The representation letter provided by the managements of Distributing and
Controlled dated August 2, 1996, attached hereto as Exhibit A.
2. The representation letter provided by the management of Acquiring, dated
August 2, 1996, attached hereto as Exhibit B.
3. The Agreement and Plan of Merger dated as of August 2, 1996 among
Acquiring, OTN Acquisition Sub Inc., and Distributing (the "Merger
Agreement") and the agreements set forth in Section 3.01 thereof (the
"Ancillary Agreements").
4. The Joint Proxy Statement/Prospectus and the Required AHC Documents, as
defined in Section 4.01(d)(ii) of the Merger Agreement.
5. The Form S-4 Registration Statement under the Securities Act of 1933 filed
by Acquiring in connection with the transaction contemplated by the Merger
Agreement (the "Form S-4").
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Board of Directors Page 2
August 2, 1996
6. Internal Revenue Service Revenue Procedure 96-30 Checklist Questionnaire.
7. Representation letters received from various shareholders of Distributing
in the form attached hereto as Exhibit C (relating to their intention with
respect to the holding of stock of Controlled and Acquiring.)
You have advised us that the facts contained in the Documents, and as set forth
below, provide an accurate and complete description of the facts and
circumstances concerning the proposed transactions. We have made no independent
determination regarding such facts and circumstances and, therefore, have relied
upon the Documents for purposes of this letter. Any changes to the facts or to
the Documents may affect the conclusions stated herein, perhaps in an adverse
manner.
We understand that you will include references to Ernst & Young LLP and our
opinion in the Form S-4 and will include a copy of our opinion as an exhibit
thereto. Subject to our prior review and approval, we consent to the inclusion
of such references and a copy of our opinion.
STATEMENT OF FACTS
Axion Inc. ("Distributing") was incorporated under Delaware law in 1987, as
Access Biotechnology, Inc., and changed its name to Axion in 1994. Through
subsidiaries, Distributing is engaged in the Clinical/Disease Management and
Distribution Businesses, described more fully below.
The Clinical/Disease Management Business
The Clinical/Disease Management Business is a collection of related
cancer-focused healthcare activities designed to promote provision of the
highest quality cost-effective cancer care by office-based oncologists. This
business began upon Distributing's incorporation in 1987 through its clinical
studies activity. This activity, which continues to the present, consists of
coordinating the study of emerging cancer drugs and treatments developed by
pharmaceutical
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August 2, 1996
and biotechnology companies. A significant contribution of Distributing in this
area is its ability, through its relationships with the Southwest Oncology Group
and others, to facilitate these studies on patients in doctor's offices.
Depending on the particular item, the company will help develop the parameters
of the study, negotiate the contract, act as project manager, provide logistical
support (such as ordering, receiving, tracking and disbursing drug shipments,
and tracking patient sign-ups and responses), receive and disburse payments,
collect and analyze the data, and prepare a report of the results. The drug
utilization data developed is likely the most comprehensive available in the
industry. Revenues are derived from contracts with drug companies and practice
groups.
The information and relationships developed in the clinical studies activity
have resulted in the provision of other services, largely to office-based
oncologists, including reimbursement assistance, preparation of Federal Drug
Administration applications, practice management, and (through OPUS Health
Systems, described below), inventory management. Moreover, its knowledge and
experience have enabled the company to develop cancer drug protocols and
treatment guidelines which serve as integral parts of its disease management
program. In this activity, began in 1993, the company negotiates with payers to
manage the delivery of cancer care. In this regard, the company has developed a
network of physicians through which such care is provided using the protocols
and guidelines described above, and the computer resources described below, all
with a view to providing the highest quality, cost-effective cancer treatment.
At the end of 1994, the assets and liabilities of the Clinical/Disease
Management Business were contributed to a newly-formed wholly-owned subsidiary,
formerly OnCare Health Inc. (presently named Axion HealthCare Inc.)
("Controlled"), which conducts all of the foregoing activities.
The Distribution Business
In September 1990, Distributing began to distribute oncology pharmaceuticals and
related supplies to office-based oncology practices (the "Distribution
Business"). The Distribution Business provides these practices with next-day
delivery (compared with days or weeks when the drugs are ordered from the
manufacturer), thereby reducing inventory requirements and pharmaceutical
expiration.
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Board of Directors Page 4
August 2, 1996
Distributing directly conducted both the Clinical/Disease Management and the
Distribution Businesses until 1993. In July 1993, Distributing entered into a
series of agreements with Bristol-Myers Squibb Company ("Acquiring") to form the
Oncology Therapeutics Network Joint Venture, L.P., a Delaware limited
partnership ("OTNJV"). Distributing formed a wholly-owned subsidiary, Oncology
Therapeutics Network Corporation ("OTNC"), to act as the general partner of
OTNJV. A wholly-owned subsidiary of Acquiring ("BMS Partner Sub") is the limited
partner. Distributing contributed the assets of its Distribution Business to
OTNC, which, in turn, contributed those assets to OTNJV. In addition,
Distributing agreed to provide all administrative, operational, and other
services necessary to support the joint venture, subject to reimbursement for
its costs by OTNJV. Acquiring appointed OTNJV as its exclusive sales agent for
Acquiring's oncology products for office-based practices.
In addition to the Clinical/Disease Management and Distribution Businesses,
Distributing conducts an Information Management Business and previously
conducted a Physicians Practice Management Business.
The Information Management Business
The Information Management Business, which provides inventory and information
management systems to oncology practices, is conducted through OPUS Health
Systems, Inc. formerly OnCare Systems Inc. ("OPUS"), a wholly-owned subsidiary
of Distributing. OPUS provides oncologists with state-of-the-art technology in
inventory management and drug utilization. The information provided by the
Information Management Business allows oncologists to use the most appropriate
pharmaceuticals (including generics), and then only when needed, thereby
reducing inventory carrying costs.
Included in OPUS' Information Management Business is the OPUS Station activity
("OPUS Station"). OPUS Station is an automated drug dispensing and inventory
tracking activity, specifically tailored for use in the outpatient setting.
Located in the doctor's office, the OPUS Station equipment links the local
oncology practice with OTN.
OPUS also owns and operates the OPUS Matrix, a Windows-based application, that
generates recommended treatment procedures from patient diagnoses and treatment
regimens. As part of the disease management activity, OPUS Matrix provides
office-based oncology practices with
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access to a central database containing drug and treatment information.
The Physician Practice Business
OnCare Inc., previously a more-than-80-percent-owned subsidiary of Distributing,
is an oncology-specific physician practice management company, which acquires
and manages local oncology practices (the "Physician Practice Business"). The
oncologists who were the former owners of the acquired practices work as
professional service providers to the company. OnCare Inc.'s providers (who
employ the OnCare treatment guidelines in their practice) are represented to
health plans as part of a select managed cancer care network that can offer
documented proof of high-quality, cost-effective care. All of Distributing's
common stock of OnCare Inc. was distributed to its shareholders on December 31,
1995.
As of June 30, 1996, Distributing had one class of common stock, and several
classes of preferred stock, issued and outstanding. Distributing also has
outstanding certain warrants and employee options with respect to its common
stock. The common stock consists of 15 million authorized shares, of which
approximately 1.6 million are issued and outstanding. Preferred stock consists
of 10 million authorized shares, of which approximately 6.7 million are issued
and outstanding. The preferred stock is divided into Classes A - F; each class
is convertible into common stock. No dividends are in arrears on any class of
preferred stock. Distributing also has outstanding certain employee stock
options.
Distributing uses the accrual method of accounting for Federal income tax
purposes and files its consolidated Federal income tax return on a calendar year
basis.
BUSINESS PURPOSE
The Acquisition is being undertaken to secure a number of strategic objectives
for Distributing and Acquiring, including (a) elimination of a conflict
perceived by the customers of the Distribution Business between that business
and the clinical/disease management and physician practice activities; (b) the
opportunity to increase sales to office-based oncology practices; and (c)
allowing Acquiring to expand the quality of services provided to such practices.
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Distributing must separate the Distribution Business from the rest of
Distributing's activities in order to permit the Acquisition to occur. Acquiring
has stated that it has no interest in acquiring from Distributing any assets
other than (i) 100 percent of OTN's interest in OTNJV, and (ii) the OPUS Station
activities (collectively referred to as the "Wanted Assets"). Accordingly, as a
condition to the acquisition of the stock of Distributing, Acquiring will
require that Distributing divest all assets and liabilities other than the
Wanted Assets (and related liabilities) prior to Acquiring's acquisition of that
stock. Further, separation of the Distribution Business from its other
activities is integral to Distributing's decision to undertake the Acquisition.
PROPOSED TRANSACTION
The following transactions have been proposed for the business reasons described
above.
1. OTNJV will distribute to OTN, cash representing a preference payment
to which OTN is entitled for periods ending June 30, 1996. OTN will
distribute that cash to Distributing.
2. OPUS will transfer to a newly created corporation, OPUS Sub, the
assets related to the OPUS Matrix activity. OPUS Sub will assume all
related liabilities.
3. OPUS will distribute the stock of OPUS Sub to Distributing.
4. Distributing will contribute to Controlled all assets other than the
Wanted Assets. Controlled will assume all liabilities other than those
related to the Wanted Assets and those previously assumed by OPUS Sub.
5. All of Distributing's preferred stock will be converted into common
stock by vote of the preferred shareholders and previously nonvested
Distributing options will become vested. All options will be exercised
or cancelled. Distributing will provide loans to facilitate exercise.
6. Controlled will be recapitalized through the exchange by Distributing
of all of its shares of Controlled common stock for a number of shares
of Controlled preferred
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August 2, 1996
stock equal to the number of shares of Distributing stock outstanding.
7. Distributing will distribute all of the stock of Controlled to its
shareholders on a share-for-share basis.
8. Acquiring will cause a newly formed wholly-owned subsidiary, OTN
Acquisition Sub Inc., to merge into Distributing. In the merger,
Distributing's shareholders will receive solely stock of Acquiring in
exchange for their Distributing stock. Cash will be paid in lieu of
fractional shares.
MEMORANDUM OF AUTHORITIES
The Distribution of Controlled Stock
Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the
"Code") provides in part that a reorganization includes a transfer by a
corporation of part of its assets to another corporation if, immediately after
the transfer, the shareholders of the transferor are in "control" (as defined
below) of the transferee, and, pursuant to the plan, stock or securities of the
transferee are distributed in a transaction which qualifies under Section 355 of
the Code.
Section 355 provides for the tax free distribution of the stock of a controlled
subsidiary. In general, to meet the requirements of Section 355 --
(i) Immediately before the distribution, the distributing corporation must
"control" the corporation whose shares are being distributed. The term
"control" is defined by Section 368(c) to mean stock possessing at least 80
percent of the total combined voting power and at least 80 percent of the
total number of shares of all other classes of stock. Section 355(a)(1)(A);
(ii) Immediately after the distribution, both the distributing and controlled
corporations must be engaged in the active conduct of a trade or business.
Section 355(a)(1)(C) and (b). This active conduct of a trade or business
requirement is satisfied only if the trade or business was actively
conducted throughout the five-year period ending on the date of
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August 2, 1996
distribution, and that business (or control of a corporation conducting
that business) was not acquired within that period in a transaction in
which gain or loss was recognized.
Section 355(b)(2);
(iii)The distributing corporation must distribute all of its stock and
securities in the controlled corporation or distribute enough stock to
constitute control and establish to the satisfaction of the Treasury that
the retention of stock in the controlled corporation is not part of a tax
avoidance plan. Section 355(a)(1)(D);
(iv) The transaction must not be used principally as a device for the
distribution of earnings and profits. Section 355(a)(1)(B);
(v) There must be a corporate business purpose for the transaction and a
continuity of interest. Section 1.355-2(b) and (c) of the Income Tax
Regulations (the "Regulations"); and
(vi) The transaction must not constitute a "disqualified distribution" as
defined in Section 355(d)(2) of the Code.
Control Immediately Before the Distribution
With regard to the Section 355 requirements above, the test described in (i) is
satisfied because Distributing will own 100 percent of the stock of Controlled
immediately before the distribution.
Active Conduct of a Trade or Business
The active trade or business requirement of Section 355(b) has several
components: (i) the distributing and controlled corporations must be engaged in
the active conduct of a trade or business immediately after the distribution;
(ii) the business(es) must have been actively conducted for the five-year period
before the distribution; and (iii) neither the active business nor the stock of
the controlled corporation may have been acquired in a taxable transaction
during the five-year period preceding the distribution. Sections 355(b)(1) and
(2).
The five-year active business requirement is satisfied if the businesses have
been actively
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conducted by the distributing or controlled corporations for five years before
the distribution. Corporations are considered actively engaged in the conduct of
a trade or business if they carry on a specific group of activities, generally
including the collection of income, for the purpose of earning a profit and the
payment of expenses. Section 1.355-3(b)(2)(ii) of the Regulations. A corporation
is engaged in the active conduct of a trade business if it is directly so
engaged, or if "substantially all" of its assets consist of stock of one or more
corporations which are so engaged. Section 355(b)(2)(A). A corporation will meet
this "substantially all" requirement if 90 percent of the fair market value of
its gross assets consists of stock of qualifying corporations. Rev. Proc. 77-37,
1977-2 C.B. 568.
Generally, a trade or business is considered to be actively conducted if the
corporation itself performs active and substantial management and operational
functions. Although activities performed on behalf of the corporation by
independent contractors and other parties outside the corporation are not
considered as performed by the corporation, the active conduct requirement may
be satisfied even though some activities are performed by others. Section
1.355(b)(2)(iii) of the Regulations.
Distributing has been directly engaged in the Clinical/Disease Management
Business from 1987 to 1994, and indirectly engaged in the Clinical/Disease
Management Business through its wholly-owned subsidiary Controlled from 1995 to
the present. The activities of Controlled that relate to the Clinical/Disease
Management Business include the full process of earning income or profit, as
described in Section 1.355-3(b)(2)(ii) of the Regulations.
In this regard, we note that the disease management activity began in 1993. It
is unclear whether this activity is a part of a single business, or is a
separate business activity. Section 1.355-3(b)(3)(ii) of the Regulations
provides that:
"[I]f a corporation engaged in the active conduct of one trade or business
during that five-year period purchased, created, or otherwise acquired
another trade or business in the same line of business, then the
acquisition of that other business is ordinarily treated as an expansion of
the original business, all of which is treated as having been actively
conducted during that five-year period, unless that purchase, creation, or
other acquisition effects a change of such a character as to constitute the
acquisition of a new or different business."
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As explained supra, in light of the fact that the disease management activities
evolved out of, and use the information developed by, the corporation's other
cancer focused healthcare activities, an argument can be made that these are all
part of single business activity. Even if, however, the disease management
activity is viewed to be a separate business, Controlled will nonetheless
satisfy the 5-year active business test by virtue of its remaining activities.
In addition, the proposed transactions contemplate that Controlled will have a
substantial amount of cash and similar assets. Assuming arguendo that these
assets are not viewed as active business assets (see below), nonetheless, the
Internal Revenue Service (the "Service") has held that a corporation may meet
the active business test even though a small percentage of its assets is
directly utilized in the active business activity. See Rev. Rul. 73-44, 1973-1
C.B. 182; GCM 34238 (where the active business assets amount to 5 percent of the
total assets).(1) See also, TAM 8308007 (October 29, 1982). Instead, as
described more fully below, the existence of cash is analyzed under the "device"
rules.
Distributing has been directly engaged in the Distribution Business from 1990 to
1993, and indirectly engaged in the Distribution Business from 1993 to the
present through its wholly-owned subsidiary OTN (which owns a 50 percent general
partnership interest in OTNJV). The conduct of the Distribution Business
includes the full process of earning income or profit, as described in Section
1.355-3(b)(2)(ii) of the Regulations.
We believe that the formation of OTNJV and the transfer of assets to it in 1993
does not cause the Distribution Business previously conducted by Distributing to
fail to satisfy the 5-year active business test. In this regard, we note that
OTN actively manages the operations of OTNJV. Accordingly, applicable
authorities indicate that it is still actively engaged in the Distribution
Business begun by Distributing.
In Rev. Rul. 79-394, 1979-2 C.B. 141, amplified by Rev. Rul. 80-181, 1980-2 C.B.
121, the
____________________
(1) Pursuant to Section 6110(j)(3) of the Code, private letter rulings,
technical advice memorandums, and GCMs are not cited as precedent, but to
illustrate a consistent position by the Service.
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Board of Directors Page 11
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Service concluded that operational activities relating to corporation X, that
were conducted by another member of the affiliated group of which X was a
member, could be taken together with the management activities conducted by the
officers of X to satisfy the active trade or business requirement of Section
355. Similarly, in Rev. Rul. 92-17, 1992-1 C.B. 142, a limited partnership
("LP") owned certain real estate that it operated for more than 5 years. D
corporation had been a 20 percent general partner in LP for more than 5 years.
D's officers performed active and substantial management functions for the
business conducted by LP, including supervising LP's employees. The Service
concluded that management activities conducted by D in support of the
operational activities conducted by LP satisfied the active trade or business
requirements of Section 355. See also, PLR 9510005 (December 5, 1994) in which
the Service applied Rev. Rul. 92-17 and found that a corporation met the active
trade or business requirement of Section 355 where that corporation was the
managing general partner of a partnership that conducted a business meeting that
requirement. Furthermore, we understand that the day-to-day operations of the
Distribution Business changed very little (if at all) after the formation of the
partnership, and are now conducted largely by employees of OTN. Accordingly, we
believe that Distributing (through OTN) should be viewed as continuing its
Distribution Business.
Thus, for the foregoing reasons, we believe that the active trade or business
requirement for both Distributing and Controlled should be satisfied in this
case.
Distribution of Control
The requirement in (iii) will be satisfied in the proposed transaction because
Distributing will distribute 100 percent of the stock of Controlled to its
shareholders in the distribution.
Device to Distribute Earnings and Profits
As noted, Section 355(a)(1)(B) of the Code and Section 1.355-2(d) of the
Regulations provide that Section 355 does not apply to a transaction used
principally as a device for the distribution of the earnings and profits of the
distributing corporation, the controlled corporation, or both. The Regulations
provide that, generally, the determination of whether a transaction was used
principally as a device will be made from all of the facts and circumstances,
including, but not limited to, the presence or absence of certain factors
described therein. Section 1.355-2(d) of
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the Regulations.
Section 1.355-2(d)(2)(iii) of the Regulations provides that a sale or exchange
of the stock of the distributing or controlled corporation is evidence of a
device. Section 1.355-2(d)(2)(iii)(E) further provides, however, that if stock
is exchanged for stock in pursuance of a plan of reorganization in which no gain
or loss (or an insubstantial amount of gain) is recognized, the exchange is not
treated as evidence of device, and the device rules will be applied by reference
to the stock received. In the present case, the exchange of the stock of
Distributing after the spin-off will be effected pursuant to a transaction
qualifying as a tax-free reorganization described in Section 368(a)(1)(B) of the
Code. Accordingly, such exchange will not result in the transaction being
considered to have been used principally as a device. Further, it has been
represented that certain shareholders of Distributing have no plan or intention,
and the management of Distributing knows of no plan or intention on the part of
the remaining Distributing shareholders, to sell or exchange stock of Controlled
or Acquiring after the Acquisition.
In general, Section 1.355-2(d)(2)(iv)(B) of the Regulations provides that the
existence of assets not used in a trade or business (including cash and liquid
assets not related to the reasonable needs of the business) is evidence that the
transaction is being used principally as a device to distribute earnings and
profits. The strength of this evidence depends on all the facts and
circumstances, including the ratio for each corporation of the value of assets
not used in a trade or business to the value of assets that satisfy the active
trade or business requirement of Section 355. Section 1.355-2(d)(3)(ii) of the
Regulations provides that the existence of a corporate business purpose for the
transfer or retention of assets not used in a trade or business can outweigh the
evidence of device presented by such transfer or retention.
In the present case, cash and other liquid assets will be transferred by
Distributing to Controlled as part of the transaction. Management of
Distributing has indicated that the disease management activity of Controlled
(which, as noted, evolved from the clinical operations) will require substantial
funds beyond expected operating profits to maintain and expand its data base and
to market its services throughout the oncology community. We further understand
that, because these activities are in their initial stages, it would be very
difficult for Controlled to obtain lending from outside sources. Similarly,
management of Distributing and Controlled have represented that the cash and
other liquid assets will only be used in the business activities
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Board of Directors Page 13
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retained by Controlled or to satisfy obligations under agreements relating to
the Proposed Transaction. Further, we understand that Acquiring and Distributing
never considered that these assets would be retained in the Distribution
Business or otherwise included in the Acquisition. Therefore, arguably, the cash
and other liquid assets are related to the reasonable needs of Controlled's
business; in any event, there is a business purpose for the transfer.
The Service has ruled that a contribution to a controlled corporation, in
anticipation of a spin- off, made to allow the controlled corporation to expand
its business, is not indicative that the transaction is used principally as a
device to distribute earnings and profits. In Rev. Rul. 83- 114, 1983-2 C.B. 66,
immediately prior to the spin-off, the distributing corporation canceled
indebtedness owed by a controlled corporation in order to enable the latter to
expand its business with operating proceeds and investment capital. The
cancellation resulted in more than a 100- percent increase in the controlled
corporation's net worth. Rev. Rul. 83-114 concluded that, in light of the
business purpose for the contribution, the distribution was not used principally
as a device to distribute earnings and profits.
In addition, the Service has held that a transfer of cash to a controlled
corporation made to equalize values in a split-off transaction will not be
considered as evidence that the transaction is being used principally as a
device for the distribution of earnings and profits. See Rev. Rul. 64-102,
1964-1 C.B. 136 (capital contribution more than doubled the value of the
controlled corporation); Rev. Rul. 71-383, 1971-2 C.B. 180; Section
1.355-2(d)(3)(iv)(B) of the Regulations. Compare Rev. Rul. 86-4, 1986-1 C.B. 174
(transfer of investment assets by distributing to the controlled corporation
immediately prior to a pro-rata spin-off was a factor to be considered, along
with other factors, in determining whether the transaction was a device); cf.
Rev. Rul. 59-400, 1959-2 C.B. 114, (shift in earnings from a hotel business to a
rental real estate business approximately one year prior to a pro rata spin-off
resulted in nonqualification under Section 355 in light of the fact that rental
real estate was involved).
Accordingly, based on the facts and circumstances, cash and other liquid assets
can be contributed to a controlled corporation in anticipation of a distribution
without the transaction being considered to have been used principally as a
device to distribute earnings and profits. The instant transaction appears to
present such a case. Thus, in this case, there is an important business reason
for the distribution of the stock of Controlled, i.e., to facilitate the
acquisition by Acquiring. Further, as stated above, there is an important
business reason for the
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contribution of cash and similar assets--i.e., to fund the continued development
and expansion of the disease management activities. Moreover, these assets are
not to be included in the Acquisition. Accordingly, while not free from doubt,
we believe that the transaction should not be considered to have been used
principally as a device for the distribution of earnings and profits.
Business Purpose
Section 1.355-2(b) of the Regulations provides that Section 355 applies to a
transaction only if it is carried out for one or more corporate business
purposes. A transaction is carried out for a corporate business purpose if it is
motivated, in whole or substantial part, by one or more corporate business
purposes. A corporate business purpose is a real and substantial non-Federal tax
purpose germane to the business of the distributing corporation, the controlled
corporation, or the affiliated group (as defined in Section 1.355-3(b)(4)(iv) of
the Regulations) to which the distributing corporation belongs.
The business purpose test described in (vi) above should be satisfied because
the business purpose for the transaction is to facilitate a tax-free
reorganization. In order to complete the Acquisition under the facts of this
case, Acquiring is requiring Distributing to divest the assets described above.
The Service has long and consistently recognized that a spin-off made in order
to permit a tax-free reorganization involving the distributing corporation is
supported by a business purpose. See Rev. Rul. 68-603, 1968-2 C.B. 148, Rev.
Rul. 70-434, 1970-2 C.B. 83, and Rev. Rul. 78-251, 1978-1 C.B. 89. See also
Commissioner v. Morris Trust, 367 F. 2d 794 (4th Cir. 1966).
There are no other tax-free alternatives to accomplishing this business
objective. Thus, Acquiring cannot simply acquire the stock of OTN directly from
Distributing, as such an acquisition would subject Distributing to
characterization as an "investment company" as that term is defined under the
Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et seq. (the "1940 Act"). If
Distributing were an investment company it would be required to register with
the Securities and Exchange Commission (the "SEC"), and would become subject to
the 1940 Act's pervasive regulatory framework. Failure to register would subject
Distributing and its management to administrative and judicial penalties,
including the possible voiding of any contracts entered into by the company and,
possibly, criminal conviction of its management.
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Once a company registers with the SEC as an investment company, the company and
its directors, officers, substantial shareholders and other related persons are
subject to a broad set of regulatory restrictions administered by the SEC over a
great many areas, including the composition of the board of directors, incentive
compensation, issuances of stock, capital structure, asset composition and
transactions with affiliates.
In addition, Distributing's management believes that if it held a large amount
of its assets in the form of Acquiring stock, Controlled's disease management
activity would be severely adversely affected. Thus, one of the objectives of
this activity is to provide the most cost-effective care, including use of
pharmaceuticals. Further, Controlled's relationship with the oncology community
(including payers) is based upon this cost containment premise. Management
believes that Controlled's credibility, and consequently its ability to
function, would be seriously undermined if it held as the bulk of its assets an
interest in a large pharmaceutical company devoted to maximizing profits on
pharmaceutical sales. It has been a long-standing position of the Service that a
customer's reluctance to purchase products from a corporation (or one of its
group members) because of other business activity of the group is a valid
business purpose under Section 355 of the Code. See Rev. Rul. 56-450, 1956-2
C.B. 201; Rev. Rul. 59-197, 1959-1 C.B. 77; PLRs 9539006 (June 27, 1995);
9524009 (March 15, 1995); 9438026 (June 28, 1994); and 9331062 (February 17,
1993).
Continuity of Interest
Similarly, the continuity of interest requirement for a Section 355 distribution
will be satisfied because 100 percent of the stock of Controlled will be owned
by the shareholders of Distributing. After the Acquisition, the historic
shareholders of Distributing will continue their interest in the business of
Distributing through their stock ownership of Acquiring. See, Rev. Rul. 68-603,
1968-2 C.B. 148, and Commissioner v. Morris Trust, 367 F.2d 794 (4th Cir. 1966).
Disqualified Distribution
Section 355 (d) of the Code provides that, in the case of a "disqualified
distribution," the distributing corporation will recognize the gain (if any)
realized on the distribution of the stock of the controlled corporation. A
"disqualified distribution" is defined as any distribution
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otherwise qualifying under Section 355 if, immediately after the distribution,
any person holds "disqualified stock" in the distributing or controlled
corporation which constitutes a 50-percent or greater interest in either
corporation. "Disqualified stock" is defined in Section 355(d)(3) as any stock
of the distributing corporation acquired by purchase during the 5-year period
ending on the date of the distribution, and any stock of the controlled
corporation either acquired by purchase during this 5-year period, or
attributable to purchased distributing stock.
In the present case, no person has acquired a 50-percent or greater interest in
the stock of Distributing or Controlled within the 5-year period ending on the
date of the distribution. Therefore, Section 355(d) will not apply to cause gain
recognition.
The Acquisition of Distributing's Stock by Acquiring.
Section 368(a)(1)(B) of the Code provides that the term "reorganization" (a Type
B Reorganization) includes the acquisition by one corporation, in exchange
solely for all or part of its voting stock, of stock of another corporation if,
immediately after the acquisition, the acquiring corporation has control of such
other corporation. Section 368(c) provides that, for this purpose, the term
"control" means the ownership of stock possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of stock of
the corporation.
The control requirement will be met in this case, since, after the Acquisition,
Acquiring will own all of the stock of Distributing. Similarly, the "solely for
voting stock" requirement will be satisfied, as we understand that Acquiring
will acquire that Distributing stock solely for its own voting stock. The fact
that the transaction will be accomplished through a merger of a newly-created
subsidiary into Distributing does not prevent the transaction from qualifying as
a Type B Reorganization. See Rev. Rul. 67-448, 1967-2 C.B. 144. The fact that
some of the Acquiring stock will be placed in escrow will not prevent
satisfaction of the applicable requirements. Rev. Proc. 77-37, 1977-2 C.B. 568
as amplified by Rev. Proc. 84-42, 1984-1 C.B. 521.
Section 1.368-1(b) of the Regulations imposes the following additional
requirements which must be met for a transaction to qualify as a reorganization
within the meaning of Section 368: (i) "continuity of interest" must be present,
(ii) "continuity of business enterprise" must exist, and
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Board of Directors Page 17
August 2, 1996
(iii) an appropriate business purpose must be present.
Rev. Proc. 77-37, 1977-2 C.B. 568 provides that the "continuity of interest"
requirement is satisfied if there is continuing interest through stock ownership
in the acquiring corporation on the part of the former shareholders of the
acquired corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of all of the formerly outstanding stock
of the acquired corporation as of that date. Sales, redemptions, and other
dispositions of stock occurring prior or subsequent to the exchange which are
part of the plan of reorganization will be considered in determining whether
there is a 50 percent continuing interest through stock ownership as of the
effective date of the reorganization. In the proposed transaction, based on the
representations received, former shareholders of Distributing will receive and
retain stock of Acquiring with a value (as of the effective date of the
reorganization) to 100 percent of the value of all formerly outstanding stock of
Distributing. Therefore, the continuity of interest guideline of Rev. Proc.
77-37 will be met.
Section 1.368-1(b) of the Regulations provides that a continuity of business
enterprise (as described in Section 1.368-1(d) of the Regulations) is a
requisite to a reorganization. Section 1.368-1(d) of the Regulations provides
that continuity of business enterprise requires that the acquiring corporation
either continue the acquired corporation's historic business or use a
significant portion of the acquired corporation's historic assets in a business.
The proposed transaction will meet the continuity of business enterprise
requirement as it has been represented that, after the transaction, Distributing
will be engaged through OTNC in its historic Distribution Business. See Rev.
Rul. 85-198, 1985-2 C.B. 121. The fact that all partnership assets and
liabilities will now be held directly by OTNC should not change this result.
Section 1.368-2(g) of the Regulations provides that a reorganization must be
undertaken for reasons germane to the continuance of the business of a
corporation a party to the reorganization. As described above, the Acquisition
will be undertaken for substantial business reasons. Thus, the proposed
transaction will be motivated by a valid business purpose in accordance with the
Regulations.
Section 368(b) of the Code defines the term "a party to a reorganization" to
include a corporation resulting from a reorganization, and both corporations, in
the case of a reorganization resulting from the acquisition by one corporation
of stock or properties of
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Board of Directors Page 18
August 2, 1996
another.
Section 354(a)(1) provides that no gain or loss shall be recognized if stock or
securities in a corporation a party to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for stock or securities in such
corporation or in another corporation a party to the reorganization.
FEDERAL INCOME TAX CONSEQUENCES
Based solely upon the facts and information presented in the Documents, and on
the information set forth in this opinion letter and subject to the "SCOPE OF
OPINION," described below, it is our opinion that the following Federal income
tax consequences should result from the Proposed Transaction described above:
(1) The transfer by Distributing to Controlled of the assets other than the
Wanted Assets solely in constructive exchange for additional stock of
Controlled and the assumption of certain liabilities, as described above,
followed by the distribution of the Controlled stock pro rata to the
shareholders of Distributing should qualify as a reorganization within the
meaning of Section 368(a)(1)(D) of the Code. Distributing and Controlled
should each be "a party to a reorganization" within the meaning of Section
368(b).
(2) No gain or loss will be recognized to Distributing upon the transfer of the
assets, subject to liabilities, to Controlled in constructive exchange for
Controlled stock (Sections 351(a), 361(a) and 357(a)).
(3) No gain or loss will be recognized by Controlled upon the receipt of assets
in constructive exchange for Controlled stock (Section 1032(a)).
(4) The basis of the assets received by Controlled will be the same as the
basis of such assets in the hands of Distributing immediately prior to the
Proposed Transaction (Section
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Board of Directors Page 19
August 2, 1996
362(b)).
(5) The holding period of the Distributing assets received by Controlled will
include the period during which such assets were held by Distributing
(Section 1223(2)).
(6) No gain or loss should be recognized to (and no amount should be included
in the income of) the shareholders of Distributing upon the receipt of the
Controlled stock (Section 355(a)(1)).
(7) No gain or loss should be recognized to Distributing upon the distribution
of the Controlled stock pro rata to the shareholders of Distributing
(Section 361(c)(1)).
(8) The basis of the Controlled and Distributing stock in the hands of the
shareholders of Distributing should be the same as the basis of the
Distributing stock held by the shareholders of Distributing immediately
before the distribution, allocated in proportion to the fair market value
of each in accordance with Section 1.358-2(a)(2) of the Regulations
(Section 358(b)(1)).
(9) As provided in Section 312(h) of the Code, proper allocation of earnings
and profits between Distributing and Controlled should be made in
accordance with Section 1.312-10(a) of the Regulations.
(10) Provided the Distributing stock was held as a capital asset on the date of
the distribution of the Controlled stock, the holding period of the
Controlled stock received by the shareholders of Distributing should
include the holding period of the Distributing stock with respect to which
the distribution was made (Section 1223(1)).
(11) The acquisition by Acquiring of all the stock of Distributing solely in
exchange for Acquiring stock, as described above, will qualify as a
reorganization under Section 368(a)(1)(B) of the Code. Distributing and
Acquiring will each be "a party to a reorganization" within the meaning of
Section 368(b).
(12) No gain or loss will be recognized by the Distributing shareholders upon
the receipt of Acquiring stock solely in exchange for Distributing stock
(Section 354(a)(1)).
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Board of Directors Page 20
August 2, 1996
(13) The basis of the Acquiring stock received by Distributing's shareholders in
exchange for Distributing stock will be the same as the basis of the
Distributing stock surrendered in exchange therefor (Section 358(a)(1)).
(14) The holding period of the Acquiring stock received by the Distributing
shareholders in the Exchange will include the holding period of the
Distributing stock surrendered in exchange therefor, provided the
Distributing stock is held as a capital asset in the hands of the
Distributing shareholders on the date of the exchange (Section 1223(1)).
SCOPE OF OPINION
The scope of this opinion is expressly limited to the Federal income tax issues
specifically addressed in (1) through (14) in the section entitled "FEDERAL
INCOME TAX CONSEQUENCES" above. We have made no determination, nor expressed any
opinion as to any limitations, including those which may be imposed under
Section 382, on the availability of net operating loss carryovers (or built-in
losses), if any, after the Proposed Transaction, the application (if any) of the
alternative minimum tax to the Proposed Transaction, or on any consolidated
return, employee benefit, or foreign tax issues which may arise as a result of
the Proposed Transaction. Similarly, we have made no determination nor expressed
any opinion regarding the consequences to Distributing shareholders entitled to
special treatment under the Code (such as insurance companies, dealers in
securities, or tax exempt organizations) or to Distributing shareholders who
acquired their shares of Distributing stock pursuant to the exercise of employee
stock options or otherwise in compensatory transactions. In addition, we have
expressed no opinion on the conversion of the Distributing preferred into common
stock, on the exercise of the Distributing options, the recapitalization of
Controlled, the transfer of assets or liabilities to Distributing or any of its
direct or indirect subsidiaries in anticipation of, or as part of, the Proposed
Transaction (other than as described in (1) above), or on the effect of any
arrangements between Acquiring or its subsidiaries and Controlled or its
subsidiaries subsequent to the Acquisition. Furthermore, our opinion has not
been requested, and none is expressed, with respect to any foreign, state or
local tax consequences to Distributing, Controlled, or the shareholders of
Distributing.
We note that any variation or differences in the facts or representations
recited herein, for any
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Board of Directors Page 21
August 2, 1996
reason, might affect our conclusions, perhaps in an adverse manner, and may make
them inapplicable. Further, our opinions are based upon the analysis of the
Code, the Regulations thereunder, current case law, and published rulings. The
foregoing are subject to change, and such change may be retroactively effective.
If so, our views, as set forth above, may be affected and may not be relied
upon. We have undertaken no obligation to update these opinions for changes in
facts or law occurring subsequent to the date thereof. We do note that on March
19, 1996, the Clinton Administration sent to the Congress a proposal (the
"Proposal") to require gain recognition on certain Section 355 distributions
when at least 50 percent of the stock of the distributing or the controlled
corporation is not held at all times during the four year period commencing two
years before and ending two years after the distribution by the direct and
indirect shareholders of the distributing corporation. If the Proposal were
applicable to the instant transaction, Distributing would be required to
recognize gain (if any) realized on the distribution of the Controlled stock
since the shareholders of Distributing will own less than 50 percent of the
stock of Acquiring. The Proposal would not, however, change the treatment of
Distributing's shareholders, described above. While the Proposal stated that the
provisions would generally be effective for distributions after March 19, 1996,
a statement by Senator Roth and Congressman Archer issued on March 29, 1996,
indicated that "it is intended that the effective date. . . will be no earlier
than the date of appropriate Congressional action." We express no opinion
regarding whether the Proposal will or will not be applicable to the proposed
transaction.
This letter is not intended to be, and should not be, distributed or relied upon
by any entities or persons other than Distributing, Controlled and
Distributing's shareholders. In addition, except as expressly set forth above,
this letter should not be quoted or otherwise referred to in any documents or
filed with or furnished to any agency (other than with the Service upon
examination) without the express written consent of Ernst & Young LLP.
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Board of Directors Page 22
August 2, 1996
This letter is an opinion of our firm as to the interpretation of existing law
and, as such, is not binding on the Service or the courts.
Very truly yours,
\s\ Ernst & Young LLP
Attachments
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<PAGE>
Exhibit A to
Exhibit 8.3
[Letterhead of]
[BRISTOL-MYERS SQUIBB COMPANY]
August 2, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young, LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you pursuant the
Agreement and Plan of Merger dated as of August 2, 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation ("BMS Sub"), and Axion Inc.
("Axion"), a Delaware corporation, I certify to the best of my knowledge and
belief, after due inquiry and investigation, as follows:
1. The facts relating to the contemplated merger of BMS Sub with and into
Axion (the "Merger") pursuant to the Merger Agreement, the documents described
in Section 3.01 of the Merger Agreement and the Form S-4 Registration Statement
under the Securities Act of 1933, filed by BMS in connection with the Merger
are, insofar as such facts pertain to BMS or BMS Sub, true, correct and complete
in all material respects.
2. Except with respect to (i) payments of cash to Axion shareholders in
lieu of fractional shares of the voting common stock, par value $.10 per share,
of BMS ("BMS Common Stock") and (ii) shares of Axion stock cancelled pursuant to
Section 2.01(a) of the Merger Agreement, one hundred percent (100%) of the Axion
common stock outstanding
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2
immediately prior to the Merger will be exchanged solely for BMS Common Stock.
Thus, except as set forth in the preceding sentence, BMS and BMS Sub intend that
no consideration be paid or received (directly or indirectly, actually or
constructively) for Axion common stock other than BMS Common Stock.
3. Except as described below, BMS has no plan or intention to liquidate
Axion; to merge Axion into another corporation (other than pursuant to the
Merger Agreement); to cause Axion to sell or otherwise dispose of any of its
assets, except for dispositions made in the ordinary course of business or
payments of amounts pursuant to the Merger Agreement or the Documents described
in Section 3.01 of the Merger Agreement; to sell or otherwise dispose of any of
the Axion Stock acquired in the Merger, except for transfers described in
Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"); or to cause Axion to issue additional shares of its stock that would
result in BMS losing control of Axion within the meaning of 368(c) of the Code.
BMS plans, after the Merger, to cause the following steps to be taken to
simplify the ownership structure of the Oncology Therapeutics Network business:
First, BMS will contribute to Axion all the stock of Bristol-Myers Oncology
Therapeutic Network, Inc. ("BMS Partner Sub"), which is the wholly-owned
subsidiary of BMS that is a 50% limited partner in Oncology Therapeutics Network
Joint Venture, L.P. ("OTN L.P."). Second, BMS Partner Sub will merge into
Oncology Therapeutics Network Corporation, a Delaware corporation ("OTNC"), with
OTNC surviving the merger. Third, as a result of that merger, OTNC will own all
the interests in Oncology Therapeutics Network Joint Venture L.P., ("OTN L.P.")
which will transfer its assets and liabilities to OTNC.
4. Except as described below, BMS has no plan or intention to reacquire any
of its stock issued in the Merger, other than the possible reacquisition of
shares pursuant to the Escrow Agreement. BMS will not acquire, pursuant to its
share repurchase plan, any shares of BMS Common Stock issued in the Merger from
former shareholders of Axion common stock who received such shares in the
Merger.
5. BMS will pay the expenses, if any, incurred by BMS and BMS Sub in
connection with the Merger.
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3
6. To the best knowledge of BMS, except in the Merger, neither BMS nor any
direct or indirect subsidiary of BMS has acquired or will acquire, or has owned
during the past five years, any stock of Axion.
7. BMS intends to cause the assets and liabilities of OTN L.P. to be
transferred to OTNC, as described above, and intends to cause OTNC to conduct
directly the business formerly conducted by OTN L.P.
8. Neither BMS nor BMS Sub are investment companies as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
9. There will be no dissenters to the Merger.
10. The payment of cash, if any, in lieu of fractional shares of BMS Common
Stock is solely for the purpose of avoiding the expense and inconvenience to BMS
of issuing and administering fractional shares. The total cash consideration
that will be paid in the transaction to Axion's shareholders instead of issuing
fractional shares of BMS will not exceed one percent of the total consideration
that will be issued in the transaction to Axion's shareholders. The fractional
share interest of each Axion shareholder will be aggregated and no shareholder
will receive cash in an amount equal to the greater than the value of one full
share of BMS common stock.
11. None of the compensation received by any shareholder-employees of Axion
will be separate consideration for, or allocable to, any of their shares of
Axion stock; and none of the shares of BMS Common Stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement. The compensation paid to any shareholder-employees will be
for services actually rendered and will be determined by arm's-length
bargaining.
12. The Merger Agreement and the documents referred to in Section 3.01 of
the Merger Agreement represent the entire understanding of BMS, Axion and BMS
Sub with respect to the Merger.
13. Immediately after the Merger, BMS will own all the capital stock of
Axion.
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4
14. Unless required by a "determination" (as defined in Section 1313 of the
Code) or as otherwise required by applicable law, neither BMS nor BMS Sub will
(or will, following the Merger, cause Axion to) take any position on any tax
returns or any other action or reporting position which is inconsistent with the
qualification of the Merger as a reorganization under Section 368(a)(1) of the
Code or which is inconsistent with any of the representations in this letter.
15. BMS has no interest in acquiring from Axion any assets, or assuming any
liabilities, other than (i) 100 percent of OTNC's interest in OTN L.P., and (ii)
Axion's OPUS Station automated drug dispensing business (collectively referred
to as the "Wanted Assets"). BMS understands that Axion desires to accomplish the
transaction through the acquisition by BMS of the stock of Axion. Accordingly,
as a condition to the acquisition of the stock of Axion, BMS will require that
Axion divest all assets and liabilities, other than the Wanted Assets, prior to
BMS's acquisition of that stock.
16. In connection with the escrow being established pursuant to the Escrow
Agreement (the "Escrow Fund") (as defined in the Merger Agreement),
(i) the Escrow Fund is being established for good and valid business
reasons;
(ii) the BMS Common Stock held in the Escrow Fund (the "Escrowed
Stock") will appear as issued and outstanding on the balance sheet of BMS
and will be legally outstanding under applicable state law;
(iii) all voting rights of the Escrowed Stock will be exercisable by or
on behalf of the former Axion Shareholders or their authorized agents;
(iv) no shares of the Escrowed Stock will be subject to restrictions
requiring their return to BMS because of death, failure to continue
employment or similar restrictions;
(v) all Escrowed Stock will be released from the Escrow Fund within 5
years from the Effective Time of the Merger (except where there is a
Pending Claim (as defined in the Escrow Agreement));
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5
(vi) at least 50% of the number of shares of each class of stock to be
issued initially to the Axion shareholders will not be Escrowed Stock; and
(vii) the mechanism for the calculation of the number of shares of stock
to be returned is objective and readily ascertainable.
17. There is no intercorporate indebtedness existing between BMS or BMS Sub
and Axion that was issued, acquired or will be settled at a discount as a result
of the Merger, and BMS will assume no liabilities of Axion or any Axion
Shareholder in connection with the Merger, other than Axion expenses solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187.
18. BMS Sub is a newly-formed corporation that was created for the sole
purpose of effecting the Merger, and it has conducted no business activities and
taken no other actions except as required to effect the Merger.
BRISTOL-MYERS SQUIBB COMPANY
by _____________________________________
[Title]
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<PAGE>
Exhibit B to
Exhibit 8.3
[Letterhead of]
AXION INC.
AXION HEALTHCARE INC.
August 2, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, N.Y. 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you pursuant to the
Agreement and Plan of Merger dated as of August 2, 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation ("BMS Sub"), and Axion Inc.
("Axion"), a Delaware corporation, each of the undersigned hereby certifies, to
the best of its knowledge and belief, after due inquiry and investigation, as
set forth below. Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Merger Agreement and the documents described
in Section 3.01 of the Merger Agreement.
1. The facts relating to the contemplated merger of BMS Sub with and into
Axion (the "Merger"), the distribution of stock of Axion Healthcare Inc. and all
related transactions undertaken pursuant to or described in the Merger
Agreement, the documents set forth in Section 3.01 of the Merger Agreement or
the Form S-4 Registration Statement under the Securities Act of 1933 filed by
BMS in connection with the Merger ("Form S-4") are, insofar as such facts
pertain to Axion or any of its
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2
subsidiaries on or prior to the effective time of the Merger, true, correct and
complete in all material respects and represent the entire agreement with
respect to the proposed transactions.
2. Except with respect to (i) payments of cash to Axion shareholders in
lieu of fractional shares of the voting common stock, par value $.10 per share,
of BMS ("BMS Common Stock") and (ii) shares of Axion stock ("Axion Stock")
cancelled pursuant to Section 2.01(a) of the Merger Agreement, if any, one
hundred percent (100%) of the Axion Stock outstanding immediately prior to the
Merger will be exchanged solely for BMS Common Stock. Thus, except as set forth
in the preceding sentence, Axion intends that no consideration be paid or
received (directly or indirectly, actually or constructively) for Axion Stock
other than BMS Common Stock.
3. Other than in satisfaction of the Axion Options (as defined in Section
6.06 of the Merger Agreement), neither Axion nor any of its subsidiaries has
issued or acquired any shares of Axion Stock in contemplation of the Merger, or
otherwise as part of a plan of which the Merger is a part.
4. To the best of knowledge of the management of Axion and Axion HealthCare
Inc. ("AHC") there is no plan or intention on the part of any shareholders of
Axion to sell, exchange or otherwise dispose of, reduce the risk of loss (by
short sale or otherwise) of the holding of, enter into any contract or other
arrangement with respect to, or consent to the sale or other disposition of
(each of the foregoing, a "disposition"), any interest in the shares of BMS
Common Stock received in the Merger or any shares of AHC Preferred Stock
received in the Distribution other than the receipt of cash in lieu of
fractional shares of BMS Common Stock received in the Merger. In addition, to
the best knowledge of the Management of Axion and AHC, (i) there has been no
"disposition" of shares of Axion Stock in anticipation of the Merger and (ii)
there is no plan or intention on the part of any shareholders of Axion to effect
a disposition of shares of Axion Stock in anticipation of the Merger.
5. Axion has no present plan or intention to issue additional shares of its
stock that would result in BMS losing control of Axion within the meaning of
Section 368(c)(1) of the Internal Revenue Code.
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3
6. Axion, AHC and the shareholders of Axion will pay their respective
expenses, if any, incurred in connection with the Merger, the Distribution and
all related transactions; provided that all such expenses of Axion and AHC shall
be paid at the Effective Time by funds supplied by or on behalf of BMS except
that the amount of cash that would otherwise be contributed to AHC pursuant to
the Distribution shall be reduced to the extent such expenses exceed $2,000,000.
7. At the time of the Merger, Axion will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in Axion that, if exercised or converted, would
affect BMS's acquisition or retention of control of Axion, as defined in Section
368(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Axion is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
9. To the knowledge of Axion and AHC, none of the compensation received by
any shareholder-employees of Axion will be separate consideration for, or
allocable to, any of their shares of Axion stock; and none of the shares of BMS
Common Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement. To the knowledge
of Axion and AHC, the compensation paid to any shareholder-employees will be for
services actually rendered and will be determined by arm's-length bargaining.
10. Unless required by a "determination" (as defined in Section 1313 of the
Code) or as otherwise required by applicable law, Axion will not take, and Axion
is not aware of any plan or intention of Axion shareholders to take, any
position on any tax returns or any other action or reporting position which is
inconsistent with the qualification of the Merger as a reorganization under
Section 368(a)(1) of the Code or which is inconsistent with any of the
representations in this letter.
11. In connection with the escrow being established pursuant to the Escrow
Agreement (the "Escrow Fund"):
(i) the Escrow Fund is being established for good and valid business
reasons;
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4
(ii) all voting rights of the BMS Common Stock held in the Escrow Fund
(the "Escrowed Stock") will be exercisable by or on behalf of the former
Axion Shareholders or their authorized agents;
(iii) no shares of the Escrowed Stock will be subject to restrictions
requiring their return to BMS because of death, failure to continue
employment or similar restrictions;
(iv) all Escrowed Stock will be released from the Escrow Fund within 5
years from the Effective Time of the Merger (except where there is a
Pending Claim (as defined in the Escrow Agreement));
(v) at least 50% of the number of shares of each class of stock to be
issued initially to the Axion shareholders will not be Escrowed Stock; and
(vi) the mechanism for the calculation of the number of shares of
stock to be returned is objective and readily ascertainable.
12. There is no intercorporate indebtedness existing between BMS, or its
subsidiaries on the one hand, and Axion or its subsidiaries that was issued,
acquired or, to the knowledge of AHC and Axion, will be settled at a discount as
a result of the Merger, and to the knowledge of Axion and AHC, BMS will assume
no liabilities of Axion or any Axion Shareholder in connection with the Merger,
other than Axion expenses solely and directly related to the Merger in
accordance with Rev. Rul. 73-54, 1973-1 C.B. 187.
13. Axion is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of Section 368(a)(3)(A) of the Code.
14. The total adjusted basis and the fair market value of the assets to be
transferred to AHC by Axion will each equal or exceed the sum of the liabilities
to be assumed by AHC plus any liabilities to which the transferred assets are
subject.
15. The liabilities to be assumed by AHC and the liabilities to which the
transferred assets are subject were incurred in the ordinary course of business
or in connection with the transactions contemplated by the Documents.
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5
16. Axion neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the transactions contemplated by the
Documents.
17. No assets being transferred between Axion and AHC include property for
which an investment tax credit was taken in prior years.
18. Immediately after the distribution of the stock of AHC, at least 90
percent of the fair market value of the gross assets of Axion will consist of
the stock of OTNC.
19. Following the transactions contemplated by the Documents, AHC will
continue the active conduct of its business independently and with its own
separate employees.
20. No intercorporate debt will exist between Axion and AHC immediately
following the proposed transactions other than certain indemnification
arrangements and other arrangements with respect to liabilities as set forth in
the Documents.
21. The five years of financial information submitted on behalf of Axion,
OTN and AHC is representative of each corporation's present operations, and
there have been no substantial changes since the date of the last financial
statements included in the Form S-4.
22. After the Merger all continuing transactions between BMS or its
subsidiaries, on the one hand, and AHC or its subsidiaries, on the other hand,
will be for fair market value based on terms and conditions arrived at by the
parties bargaining at arm's length.
23. No part of the AHC stock to be distributed by Axion will be received by
a shareholder as a creditor, employee, or in any capacity other than that of the
shareholder of Axion.
24. Axion's holdly of the BMS Common Stock to be supplied in the Merger
would seriously, adversely affect Axion and its Subsidiaries' Conduct of the
clinical/disease Management Activity.
<PAGE>
<PAGE>
6
25. AHC intends that all of the cash and similar assets to be received by
AHC from Axion pursuant to the Distribution Agreement (including the Cash
proceeds from redemption of the Oncare Preferred Stocks received from Axion and
the proceeds from payments of any promissory notes received from Axion) will, to
the extent not placed into escrow pursuant to the Documents or otherwise used to
satisfy obligations under the Documents, be retained by AHC and used in AHC's
(or its subsidiaries') business activities.
26. There is no plan or intention to liquidate AHC or to merge AHC with any
other corporation, or to sell, exchange, or otherwise dispose of the assets of
AHC or any of its subsidiaries subsequent to the transactions contemplated in
the Documents except in the ordinary course of business.
27. Notwithstanding anything herein to the contrary, the undersigned make
no representations regarding any actions or conduct of Axion or its subsidiaries
pursuant to BMS's exercise of control over Axion or its subsidiaries after the
Merger.
AXION CORPORATION
by _____________________________________
[Title]
AXION HEALTHCARE INC.
by _____________________________________
[Title]
<PAGE>
<PAGE>
Exhibit C to
Exhibit 8.3
, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, N.Y. 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young, LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you relating to the tax
consequences of the Distribution or the tax consequences of the Merger (each as
defined in the Agreement and Plan of Merger dated as of July , 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation, and Axion Inc. ("Axion"), a
Delaware corporation), the undersigned certifies, after due inquiry and
investigation, as follows:
1. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of (including by way of a distribution by a partnership or a
corporation to its partners or shareholders, respectively), reduce the risk of
loss (by short sale or otherwise) of the holding of, enter into any contract or
other arrangement with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any interest in any of
the shares of common stock, par value $0.0001 per share, of Axion Healthcare,
Inc. ("AHC Common Stock") received in the Distribution. In addition, the
undersigned has not effected, and has no plan or intent to effect, a
"disposition" of Axion capital stock (other than in exchange for BMS Common
Stock pursuant to the Merger, but including the exercise of dissenters' rights)
in contemplation of the Distribution or as part of a plan therewith.
<PAGE>
<PAGE>
2
2. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of (including by way of a distribution by a partnership or a
corporation to its partners or shareholders, respectively), reduce the risk of
loss (by short sale or otherwise) of the holding of, enter into any contract or
other arrangement with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any interest in any of
the shares of voting common stock of BMS ("BMS Common Stock") received in the
Merger. In addition, the undersigned has not effected, and has no plan or intent
to effect, a "disposition" of Axion capital stock (other than in exchange for
BMS Common Stock pursuant to the Merger, but including the exercise of
dissenters' rights) in contemplation of the Merger or as part of a plan
therewith.
3. The undersigned will not take any position on any Federal, state or
local tax return, or take any other action or reporting position, which is
inconsistent with the qualification of the Distribution as a tax-free
distribution under Section 355 of the Code, with the Merger as a reorganization
under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, or
which is inconsistent with the representations made in this letter, in each case
unless required pursuant to a "determination" (as defined in Section 1313 of the
Code).
4. Notwithstanding the foregoing, the undersigned acknowledges that the
undersigned will hold the BMS Common Stock received in the Merger with an
investment intent and, therefore, in the event of a change in circumstances
(including a change in personal or financial circumstances or a change in the
value of the BMS Common Stock), the undersigned may at some time in the future
effect a "disposition" of shares of the BMS Common Stock received in the Merger.
5. The undersigned shall immediately notify each of the Chief Financial
Officers of Axion or BMS, respectively, in writing via facsimile, of any
"disposition" of shares of Axion Capital Stock prior to the Merger or any
<PAGE>
<PAGE>
3
change, on or prior to the Merger, of the plans or intentions of the undersigned
as set forth above.] [In lieu of second rep. letter.
NAME OF LARGE SHAREHOLDER
by _____________________________________
[Title]
<PAGE>
<PAGE>
Exhibit 11
Axion, Inc.
Computation of Net Income (Loss) Per Share
(In thousands, except net income (loss) per share)
<TABLE>
<CAPTION>
Three Months Ended
Years ended December 31, March 31,
------------------------------------------------
1993 1994 1995 1995 1996
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $(3,966) $ 1,428 $ 7,887 $ 1,200 $ 1,741
------------------------------------------------
Shares
Common shares 1,573 1,562 1,589 1,574 1,604
Dilutive common equivalent shares
Preferred shares -- 6,156 6,738 6,736 6,741
Stock options(1) -- 472 480 486 471
------------------------------------------------
Total 1,573 8,190 8,807 8,796 8,816
------------------------------------------------
Net income (loss) per share $ (2.52) $ 0.17 $ 0.90 $ 0.14 $ 0.20
================================================
</TABLE>
- ------------
(1) Based on the treasury stock method using average fair value in each period.
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 22, 1996 (except for Note 11, as to which the date
is August 2, 1996), with respect to the consolidated financial statements of
Axion Inc. included in the Registration Statement (Form S-4) and related
Prospectus of Bristol-Myers Squibb Company (and in the Proxy Statement of Axion
Inc.) for the registration of shares of common stock of Bristol-Myers Squibb
Company.
\s\ Ernst & Young LLP
Palo Alto, California
August 2, 1996
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus constituting part of this Registration Statement on Form S
- - 4 of Bristol-Myers Squibb Company of our report dated January 23, 1996
appearing on page 51 of Bristol-Myers Squibb Company's Annual Report on Form 10
- - K for the year ended December 31, 1995. We also consent to the reference to us
under the heading "Experts" in such Proxy Statement/Prospectus.
\s\ Price Waterhouse LLP
Price Waterhouse LLP
New York, New York
August 2, 1996
<PAGE>
<PAGE>
[Draft--]
AXION INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
__________, 1995
The undersigned stockholder of Axion Inc., a Delaware corporation
("Axion") hereby constitutes and appoints Michael D. Goldberg and Garrett J.
Roper, each of them, the attorneys and proxies of the undersigned, each with the
power of substitution, to attend and act for the undersigned at the Special
Meeting of Stockholders of Axion to be held at the offices of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, legal counsel to Axion, located at
600 Hansen Way, Second Floor, Palo Alto, California, on __________, 1996 at
10:00 a.m. local time, and at any adjournments or postponements thereof, and in
connection therewith to vote and represent all of the shares of Common Stock and
Preferred Stock of Axion held of record by the undersigned on ______, 1996 as
follows on the reverse side of this proxy.
Said attorneys and proxies, and each of them, shall have all the
powers that the undersigned would have if acting in person. The undersigned
hereby revokes any other proxy to vote at such meeting and hereby ratifies and
confirms all that said attorneys and proxies, and each of them, may lawfully do
by virtue hereof. Said proxies, without hereby limiting their general authority,
are specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the meeting and all matters
presented at the meeting but which are not known to the Board of Directors at
the time of the solicitation of this proxy.
PLEASE MARK YOUR CHOICE LIKE |X|
THIS IN BLUE OR BLACK INK
THIS PROXY IS SOLICITED ON BEHALF
OF THE BOARD OF DIRECTORS OF AXION
_____________________________ ___________________________
COMMON PREFERRED
The Board of Directors recommends a vote FOR Proposals Nos. 1 and 2.
1. PREFERRED STOCK PROPOSAL. For holders of Axion Preferred Stock, to
consider and vote upon a proposal to convert each issued and outstanding
share of Axion Preferred Stock in fully paid and nonassessable shares of
Axion Common Stock at an applicable conversion price.
[_] FOR [_] AGAINST [_] ABSTAIN
2. AUTHORIZATION AND ADOPTION OF THE AGREEMENT AND PLAN OF MERGER. For all
stockholders, to consider and vote upon the proposal to adopt and
approve the Merger (as defined below) and the Agreement and Plan of
Merger, dated as of August 2, 1996 (the "Merger Agreement"), by and
among Axion, Bristol-Myers Squibb Company, a Delaware corporation
("BMS"), and OTN Acquisition Sub Inc., a
<PAGE>
<PAGE>
2
Delaware corporation and wholly owned subsidiary of BMS (the
"Purchaser"), pursuant to which, among other things:
(i) The Purchaser will merge with and into Axion (the "Merger")
and Axion will become a wholly owned subsidiary of BMS.
(ii) Prior to the Merger, all options to purchase shares of Axion
Common Stock will be exercised or canceled and, if approved, the
Preferred Stock Proposal will be implemented;
(iii) At the Effective Time each issued and outstanding share of
Axion Common Stock (other than any shares of Axion Common Stock owned by
Axion or any subsidiary of Axion or BMS or any wholly owned subsidiary
of BMS and any Dissenting Shares) will be converted into the right to
receive the number of fully paid and nonassessable shares of BMS Common
Stock determined as provided in the Merger Agreement.
[_] FOR [_] AGAINST [_] ABSTAIN
Each of the above-named proxies present at said meeting, either
in person or by substitute, shall have and exercise all the powers of said
proxies hereunder. This proxy will be voted in accordance with the choices
specified by the undersigned on this proxy. In their discretion, each of the
above-named proxies is authorized to vote upon such other business incident to
the conduct of the Special Meeting as may properly come before the meeting or
any postponements or adjournments thereof. IF NO INSTRUCTIONS TO THE CONTRARY
ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF AUTHORITY TO VOTE
FOR PROPOSALS NOS. 1 AND 2 AND ON ANY OTHER MATTERS TO BE VOTED UPON.
The undersigned acknowledges receipt of a copy of the Notice
of Special Meeting of Stockholders and Proxy Statement/Prospectus
relating to the meeting.
IMPORTANT: In signing this proxy please sign exactly as your
name(s) is (are) shown on the share certificate to which the proxy applies. When
signing as an attorney, executor, administrator, trustee or guardian, please
give your full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person. EACH JOINT TENANT MUST SIGN.
_________________________________
Signature
_________________________________
(Additional signature if held jointly)
DATED: ______________________, 1996
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
<PAGE>
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.
LIMITED PARTNERSHIP AGREEMENT
July 8, 1993
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Article I - Name, Character, and Principal Office of Partnership.............................1
1.1 Partnership Name................................................................1
1.2 Partnership Purpose.............................................................1
1.3 Principal Place of Business; Registered Office..................................1
Article II - Term and Termination of the Partnership.........................................2
2.1 Term of Partnership.............................................................2
2.2 Buy/Sell Rights.................................................................2
Article III - Capital Contributions..........................................................5
3.1 Initial Capital Contributions of the Partners...................................5
3.2 Additional Capital Contributions of Partners....................................6
3.3 Future Capital Needs............................................................6
3.4 Liability of Limited Partner....................................................6
Article IV - Sales Agency Agreement..........................................................6
4.1 Sales Agency Agreement..........................................................6
Article V - Capital Accounts and Allocations.................................................6
5.1 Capital Accounts................................................................6
5.2 Definitions.....................................................................7
Article VI - Withdrawals by and Distributions and Payments to the Partners..................11
6.1 Interest and Withdrawals.......................................................11
6.2 Mandatory Payment..............................................................11
6.3 Mandatory Cash Distributions of General Partner Preference Amount..............11
6.4 Tax Distributions..............................................................12
6.5 Discretionary Distributions of Net Operating Income............................12
6.6 Distributions of Net Liquidating Income........................................12
6.7 Equivalency Distribution.......................................................13
6.8 Limitation on Distributions....................................................13
6.9 Limited Partner Return of Capital Distribution.................................13
6.10 Tax Distribution Treatment....................................................13
Article VII - Management Duties and Restrictions............................................13
7.1 Management.....................................................................13
7.2 Management Committee...........................................................13
7.3 Chairman.......................................................................17
7.4 No Control by the Limited Partner..............................................17
</TABLE>
i
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<TABLE>
<CAPTION>
Page
<S> <C> <C>
7.5 Admission of Additional Partners...............................................17
7.6 Transfer of Partnership Interests..............................................17
7.7 Deadlock; Dispute..............................................................19
7.8 Services; Reimbursement........................................................19
7.9 Restrictions on General Partner; Existing Accounts Receivable and Inventory....21
Article VIII - Dissolution and Liquidation of the Partnership...............................21
8.1 Liquidation Procedures.........................................................21
8.2 Final Allocations: Date of Termination.........................................22
ARTICLE IX Financial Accounting Reports....................................................23
9.1 Financial and Tax Accounting and Reports.......................................23
9.2 Supervision; Inspection of Books...............................................24
9.3 Quarterly Reports; Monthly Reports.............................................24
9.4 Annual Report; Financial Statements of the Partnership Income Tax Returns......24
9.5 Annual Operating and Capital Budget............................................24
Article X - Other Provisions................................................................25
10.1 Execution and Filing of Documents.............................................25
10.2 Other Instruments and Acts....................................................25
10.3 Binding Agreement.............................................................25
10.4 Governing Law.................................................................25
10.5 Publicity and Press Releases..................................................25
10.6 Notices.......................................................................25
10.7 Amendment.....................................................................26
10.8 Effective Date................................................................26
10.9 Entire Agreement..............................................................26
10.10 Titles; Subtitles............................................................26
10.11 Partnership Name.............................................................26
10.12 Exculpation..................................................................27
10.13 Indemnification..............................................................27
10.14 Tax Matters Partner..........................................................28
10.15 Taxation as Partnership......................................................29
10.16 Authorization................................................................29
10.17 Arbitration; Cooperation.....................................................29
Article XI - Miscellaneous Definitions......................................................30
11.1 Agreement.....................................................................30
11.2 Certificate of Limited Partnership............................................30
11.3 Code..........................................................................30
11.4 Partnership Interest..........................................................30
Article XII - Miscellaneous Tax Compliance Provisions.......................................30
12.1 Income Tax Allocations........................................................30
12.2 Withholding...................................................................31
</TABLE>
ii
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
12.3 Other Tax Returns.............................................................31
</TABLE>
iii
<PAGE>
<PAGE>
ONCOLOGY THERAPEUTICS NETWORK JOINT VENTURE, L.P.,
LIMITED PARTNERSHIP AGREEMENT
This Agreement is made and entered into as of the 8th day of
July, 1993, by and among Oncology Therapeutics Network Corporation, a Delaware
corporation and wholly owned subsidiary of Axion Pharmaceuticals, Inc. ("Axion")
(the "General Partner"), and Bristol-Myers Oncology Therapeutic Network, Inc., a
Delaware corporation and wholly owned subsidiary of Bristol-Myers Squibb Company
("BMS") (the "Limited Partner"), (the General Partner and the Limited Partner
from time to time shall be each referred to as a "Partner" and together as the
"Partners") which hereby form Oncology Therapeutics Network Joint Venture, L.P.,
a Delaware limited partnership (the "Partnership" or "OTN"), pursuant to the
Delaware Revised Uniform Limited Partnership Act, as follows:
ARTICLE I
NAME, CHARACTER, AND
PRINCIPAL OFFICE OF PARTNERSHIP
1.1 Partnership Name. The name of the Partnership is Oncology
Therapeutics Network Joint Venture, L.P. The partners of the Partnership are the
General Partner and the Limited Partner. The affairs of the Partnership shall be
conducted under the Partnership name, "OTN," "Oncology Therapeutics Network" or
such other name as the General Partner may determine with the Special Approval
of the Management Committee.
1.2 Partnership Purpose. The primary purpose of the Partnership
is to distribute oncology products of the Limited Partner and third parties, and
to engage in such other activities related either directly or indirectly to the
foregoing as the General Partner may deem necessary, advisable or convenient to
the conduct of the business of the Partnership; provided, however, that any
material change in the purpose of the Partnership shall require the Special
Approval of the Management Committee.
1.3 Principal Place of Business; Registered Office. The principal
place of business of the Partnership shall be 395 Oyster Point Boulevard, Suite
405, South San Francisco, California 94080, or such other place or places within
the United States as the General Partner may from time to time designate. The
Partnership's registered office in Delaware, and the name of the registered
agent for service of process shall be, The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 or such
other place or persons as the General Partner may from time to time designate.
<PAGE>
<PAGE>
ARTICLE II
TERM AND TERMINATION OF THE PARTNERSHIP
2.1 Term of Partnershiphip.
(a) The term of the Partnership (the "Partnership Term")
shall commence upon the filing with the office of Secretary of State of the
State of Delaware of the Certificate of Limited Partnership of the Partnership
and shall continue until expiration of the Term (as defined in Section 5 of the
Sales Agency Agreement) of the Sales Agency Agreement (as defined in Paragraph
4.1), without giving effect to any Extended Term pursuant to Section 8(C) of the
Sales Agency Agreement. If the Partnership Term terminates for any reason,
whether or not under this Paragraph 2.1(a), the business and management of the
Partnership shall continue on the terms of this Agreement until the Partnership
is dissolved pursuant to Article VIII of this Agreement. A Partner shall not
attempt to terminate this Agreement or dissolve the Partnership except as
contemplated in this Article II and Article VIII.
(b) Notwithstanding subparagraph (A) above, the Partnership
Term shall automatically terminate, unless the Partner not subject to the events
described in clauses (i)-(vii) below by written notice to the Partner subject to
such events within 30 days of the happening of any such event elects to continue
the Partnership, if either Partner shall (i) voluntarily commence any proceeding
or file any petition seeking relief under Title 11 of the United States Code
(other than Chapter 11 thereof) or any other Federal, state bankruptcy,
insolvency, liquidation, receivership or similar law (a "Bankruptcy Law"), (ii)
consent to the institution of, or fail to contravene in a timely and appropriate
manner, any such proceeding or the filing of any such petition, (iii) apply for
or consent to the appointment of a receiver, trustee, custodian, sequestrator or
similar official for such party or for a substantial part of its property or
assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) take corporate action for the purpose of affecting
any of the foregoing or (vii) be subject to the commencement of any involuntary
proceeding or the filing of any involuntary petition in a court of competent
jurisdiction seeking (A) relief in respect of such party or of a substantial
part of any of its property or assets under any Bankruptcy Law, (B) the
appointment of a receiver, trustee, custodian, sequestrator or similar official
for such party or for a substantial part of its property or assets or (C) the
winding-up or liquidation of such party; and in the case of this clause (vii)
such proceeding or petition shall continue undismissed for 120 days or an order
or decree approving or ordering any of the foregoing shall continue unstayed and
in effect for 60 days.
2.2 Buy/Sell Rights.
(a) Options to Sell or Purchase Partnership Interests. If
(x) the Term of the Sales Agency Agreement terminates pursuant to Sections
8(b)(1) or 8(b)(2) thereof, other than a termination that results from an event
described in such Section 8(b)(2) with respect to OTNC (as defined in the Sales
Agency Agreement), then the Partner affiliated with the party (for this purpose,
only the General Partner will be deemed affiliated with the Partnership) that
2
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<PAGE>
terminates the Sales Agency Agreement shall elect or (y) the Partnership Term
terminates pursuant to Paragraph 2.1(b), then the Partner that is not subject to
the events described in clauses (i) - (vii) of Paragraph 2.1(B) may elect, in
each case either (i) to purchase the Partnership Interest (as such term is
defined in Paragraph 11.4) of the other Partner or (ii) to cause the other
Partner to purchase such Partner's Partnership Interest. A Partner may exercise
an option described above only by giving written notice of such exercise to the
other Partner within 30 days following the termination of the Term of the Sales
Agency Agreement or, if such option is based on termination pursuant to
Paragraph 2.1(b), within 30 days following the termination of the Partnership
Term pursuant to such paragraph. If the Term of the Sales Agency Agreement
terminates pursuant to Section 8(b)(3) or 8(b)(4) thereof, then the General
Partner shall purchase, and the Limited Partner shall sell, the Limited
Partner's Partnership Interest. A Partner having a purchase right under this
paragraph may assign such right in whole or in part, including payment terms
provided below, notwithstanding any other provision of this Agreement, provided
that such assignment will not relieve the assigning party or any guarantor from
any obligation.
(b) Closing. Upon exercise by a Partner of an option under
Paragraph 2.2(a), or upon a termination of the Term of the Sales Agency
Agreement described in the third sentence of Paragraph 2.2(a), the Partners
shall be legally obligated to consummate the sale and purchase of the
Partnership Interest contemplated thereby and shall use their respective best
efforts to secure any approvals required, and to comply with all applicable laws
and governmental regulations, in connection therewith as soon as practicable.
The closing of the sale of the relevant Partner's Partnership Interest (the
"Closing") shall occur on the tenth business day following the later of (A) the
Determination of the Appraised Value of such Partnership Interest pursuant to
Paragraph 2.2(D) and (B) the expiration of any required governmental or other
regulatory waiting periods and the obtaining of any required governmental or
other regulatory consents or approvals.
(c) Purchase Price; Payment. In the event of a sale of a
Partnership Interest pursuant to this Paragraph 2.2, the purchase price of such
Partnership Interest shall be an amount equal to the Appraised Value of such
Partnership Interest determined in accordance with Paragraph 2.2(d). Such
purchase price shall be payable at the Closing in cash or, except in the case of
a termination of the Sales Agency Agreement pursuant to Section 8(b)(2) thereof,
or of the Partnership Term pursuant to Paragraph 2.1(b), at the option of the
purchasing Partner, by delivery to the selling Partner of a promissory note in a
form reasonably satisfactory to the selling Partner with a principal amount
equal to the purchase price and containing the following terms and conditions:
(i) the note shall be an unsecured obligation of the relevant Partner not
subordinated to other obligations of such Partner (but having no prior call as
to secured assets of such Partner) and shall be unconditionally guaranteed as to
payment of principal and interest by BMS or its successor, if the Limited
Partner is the obligor, or by Axion or its successor, if the General Partner is
the obligor; (ii) one third of the original aggregate principal amount of the
note shall be payable on each of the first, second and third anniversaries of
the Closing; (iii) the note will bear interest, payable quarterly in arrears, at
a floating rate of interest equal to the prime rate as set forth in the Wall
Street Journal; (iv) the note will be mandatorily prepayable in whole upon the
sale by the obligor or any affiliate thereof, directly or indirectly, of all or
substantially all of
3
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<PAGE>
the Partnership or its assets or business or a controlling interest therein or,
if the obligor on the note is the General Partner, upon any Change in Control of
the General Partner or Axion (other than the Change of Control that resulted in
the sale of the Partnership Interest pursuant to this Paragraph 2.2); and (v) if
the note was issued in connection with the purchase by the General Partner of
the Limited Partner's Partnership Interest because of a termination of the Sales
Agency Agreement pursuant to Section 8(b)(1) thereof, then any principal payment
on the note may be paid by delivering to the Limited Partner shares of fully
paid and nonassessable common stock of Axion or its successor that have an
aggregate Appraised Value equal to the amount of such principal payment,
provided that at the time of such principal payment there exists no default
under the note or event which, after the passage of time or giving of a notice,
would constitute a default under the note. If the General Partner purchases the
Partnership Interest of the Limited Partner because of a termination of the
Sales Agency Agreement pursuant to Section 8(b)(1) thereof, then the General
Partner may elect to (i) assign the right to purchase the Partnership Interest
to Axion and/or (ii) pay or cause Axion to pay the purchase price by delivering
to the Limited Partner shares of fully paid and nonassessable common stock of
Axion or its successor that have an aggregate Appraised Value equal to the
purchase price. If shares of common stock are delivered to the Limited Partner
as described above, then concurrently therewith BMS and Axion or its successor
shall enter into a registration rights agreement containing terms and conditions
reasonably satisfactory to BMS and Axion (including both "demand" and
"piggyback" registration rights); and provided further, however, that the terms
and conditions of such registration rights agreement shall be no less favorable
to BMS then the terms and conditions of any other registration rights agreement
then in effect between Axion or its successor and any other party.
(d) Determination of Appraised Value. The Appraised Value of
a Partnership Interest to be sold pursuant to this Paragraph 2.2 shall equal the
fair market value of the Partnership Interest. Such fair market value will be
determined by first determining the aggregate fair market value of all the
Partnership Interests as a whole and as a going concern taking into account the
Extended Term of the Sales Agency Agreement (and the nonexclusivity thereof)
that will remain in effect following the sale of the relevant Partnership
Interest, and the remaining commitment of the General Partner to provide
services pursuant to Paragraph 7.8 following the sale of the relevant
Partnership Interest. 100% of such determined value will then be allocated
between the Partnership Interests based on their relative economic rights under
this Agreement assuming continuation of the Partnership, provided, however, that
(i) the fair market value of the General Partner's Partnership Interest shall
not reflect any premium, and the fair market value of the Limited Partner's
Partnership Interest shall not reflect any discount, because of the respective
management rights and obligations of the Partners pursuant to this Agreement;
and (ii) the fair market value of the General Partner's Partnership Interest
shall not reflect any discount, and the fair market value of the Limited
Partner's Partnership Interest shall not reflect any premium, due to the
relative liabilities and potential liabilities of the Partners. The Appraised
Value of the relevant Partnership Interest shall be agreed upon by the Partners
or, failing such agreement, shall be conclusively determined by a nationally
recognized investment banking firm jointly selected by the Partners for such
purpose. The Partners shall use their best efforts to cause any determination of
the Appraised Value of a Partnership Interest (and common stock as
4
<PAGE>
<PAGE>
mentioned below) to be made within 30 days after the parties first become
obligated to sell and purchase a Partnership Interest pursuant to Paragraph
2.2(a). The Appraised Value of any shares of common stock of Axion or its
successor shall be determined as of the relevant payment date on which such
stock is required to be delivered and shall be agreed upon by the Partners or,
failing such agreement, shall be conclusively determined by a nationally
recognized investment banking firm jointly selected by the Partners for such
purpose. The fees and expenses of any firm making a valuation as described above
shall be shared equally by the Partners. Notwithstanding the foregoing, if
shares of common stock of Axion or its successor are traded on one or more
securities exchanges or traded on the NASDAQ National Market System, the
Appraisal Value of such common stock shall be deemed to be the average closing
price of such common stock as reported in the Wall Street Journal for the thirty
(30) days preceding the relevant payment date on which such stock is required to
be delivered.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions of the Partners.
(a) Contributions of Each Partner. Within five business days
after the date of this Agreement (the "Initial Contribution Date"), each Partner
shall contribute capital, in cash, to the Partnership payable by wire transfer
or check in an amount equal to $500,000. On August 23, 1993, each Partner shall
contribute capital, in cash, to the Partnership payable by wire transfer or
check in an amount equal to an additional $500,000 (together, such Partners'
"Initial Contribution").
(b) General Partner's Contribution. Effective as of August
23, 1993, the General Partner shall contribute all of its right, Title and
interest in the ongoing Oncology Therapeutics Network business as of such date
of the General Partner as of such date (except those excluded from the following
representation and warranty); provided that from the date of this Agreement
through the date of such contribution, the General Partner shall conduct such
business in the ordinary course; provided, however, that the General Partner
shall not transfer, and the Partnership shall not assume, any obligation or
liability of any kind or nature, primary or secondary, direct or indirect,
absolute or contingent, known or unknown, whether or not accrued, arising before
such contribution, of the General Partner, Axion or any affiliate thereof. The
General Partner represents, warrants and covenants to the Partnership that the
business to be contributed will constitute the entire ongoing business (except
as otherwise contemplated herein) of the General Partner, Axion and their
respective Controlled Affiliates (as defined in the Sales Agency Agreement)
relating to the distribution of oncology drugs and biologics (other than in
connection with clinical trials or research) to the Customer Group (as defined
in the Sales Agency Agreement) on behalf of third parties (the "Oncology
Distribution Business"), including, without limitation, all Oncology
Therapeutics Network membership data and sales and distribution know-how
relating to the Oncology Distribution Business, but excluding tangible assets,
people, operational or administrative functions or the like, and accounts
receivable.
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(c) Limited Partner's Contribution. The Limited Partner
shall contribute to the Partnership certain Bristol-Myers Oncology Division
customer lists.
3.2 Additional Capital Contributions of Partners. Except as
required in subparagraphs 3.1(b) and 3.1(c) and Paragraph 3.3, no Partner shall
be required to contribute additional capital to the Partnership in excess of
such Partner's Initial Contribution except with the Special Approval of the
Management Committee.
3.3 Future Capital Needs. The Partners shall use their combined
best efforts to enable the Partnership to establish and maintain credit
facilities adequate to fund the Partnership's working capital and fixed asset
needs; provided, however, that no Partner will be obligated to provide a
guarantee or other credit support for any Partnership obligation or any
financing unless such Partner consents thereto. Any additional debt or equity
financing required by the Partnership shall be provided by borrowings from third
parties or from the Partners or by cash capital contributions from the Partners
provided that any such borrowings, other than trade debt, or capital
contributions will require the Special Approval of the Management Committee:
provided, however, Partnership borrowings from parties other than Partners,
other than trade debt, in an aggregate amount outstanding at any one time of up
to $1,000,000 shall not require the Special Approval of the Management
Committee.
3.4 Liability of Limited Partner. Subject to any guarantee
pursuant to Paragraph 3.3, the Limited Partner shall not be liable for any of
the debts, liabilities or obligations of the Partnership or any of the losses of
the Partnership beyond the amount of the Limited Partner's Initial Capital
Contribution and any additional capital contributions, except to the extent
otherwise required by law. The Limited Partner shall not be responsible for any
debts or losses of the General Partner (other than as reflected in the Limited
Partner's Capital Account as a result of the Partnership's debts and losses but
subject to Paragraph 8.1(b)(iv)) .
ARTICLE IV
SALES AGENCY AGREEMENT
4.1 Sales Agency Agreement. Concurrent with formation of the
Partnership, BMS and the Partnership shall execute the Sales Agency Agreement in
the form attached hereto as Exhibit A (the "Sales Agency Agreement") and such
agreement shall become effective as provided therein.
ARTICLE V
CAPITAL ACCOUNTS AND ALLOCATIONS
5.1 Capital Accounts. A Capital Account shall be maintained on
the Partnership's books for each Partner in accordance with generally accepted
accounting principles except as otherwise specifically required herein. Solely
for purposes of maintaining Capital
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Accounts the parties hereto agree that the in-kind contributions of the General
Partner and the Limited Partner set forth in subparagraphs 3.1(b) and (c),
respectively, shall be deemed to be valued at zero (0). In the event any
interest in the Partnership is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the transferor
to the extent it relates to the transferred interest.
5.2 Definitions. Unless the context requires otherwise, the
following terms have the meanings specified in this Paragraph:
(a) Fiscal Year: The Partnership's first Fiscal Year shall
begin on the date hereof and end on December 31, 1993. Thereafter, the
Partnership's Fiscal Year shall commence on January 1 of each year and end on
December 31 of such year or, if earlier, the date the Partnership terminated
during such year pursuant to Paragraph 2.1 or otherwise. The Fiscal Year of the
Partnership shall end on the date the Partnership terminates in accordance with
the terms of Article II.
(b) General Partner Annual Preference Amount: The General
Partner Annual Preference Amount for each Fiscal Year shall be as follows:
Fiscal Year Amount
----------- ------
1993 $ 900,000
1994 4,900,000
1995 10,200,000
1996 18,750,000
1997 and Thereafter 0
However, to the extent that the Capital Account of the General Partner is
allocated any Net Liquidating Income pursuant to subparagraph 5.3(b)(iii), the
General Partner Annual Preference Amount will be reduced (but in no event below
zero) on a dollar-for-dollar basis in chronological order, commencing with the
General Partner Annual Preference Amount for the Fiscal Year immediately
following the Fiscal Year with respect to which the subparagraph 8.3(b)(iii)
allocation occurs. For example, if Ten Million Four Hundred and Fifty Thousand
Dollars ($10,450,000) of 1994 Net Liquidating Income is allocated to the Capital
Account of the General Partner pursuant to subparagraph 5.3(b)(iii), the General
Partner Annual Preference Amount for Fiscal Year 1995 will be reduced to zero
(0) and the General Partner Annual Preference Amount for Fiscal Year 1996 will
be reduced to Eighteen Million Five Hundred Thousand Dollars ($18,500,000). If
Three Hundred Thousand Dollars of 1995 Net Liquidating Income is thereafter
allocated to the Capital Account of the General Partner pursuant to subparagraph
5.3(b)(iii), the General Partner Annual Preference Amount for Fiscal Year 1996
will be reduced to Eighteen Million Two Hundred Thousand Dollars ($18,200,000).
(c) General Partner Cumulative Preference Amount. The
General Partner Cumulative Preference Amount shall initially equal zero and
shall equal zero
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immediately prior to the close of the 1993 Fiscal Year. Immediately following
the close of a Fiscal Year the General Partner Cumulative Preference Amount
shall be equal to (i) the sum of (A) the General Partner Cumulative Preference
Amount that existed immediately prior to the close of such Fiscal Year, plus (B)
the General Partner Annual Preference for such Fiscal Year, less (ii) the sum of
the amounts of Net Operating Income and Net Liquidating Income allocated to the
Capital Account of the General Partner pursuant to clauses (i) and (ii) of
Paragraphs 5.3(a) and 5.3(b), respectively, with respect to such Fiscal Year.
The General Partner Cumulative Preference Amount that exists immediately prior
to the close of any Fiscal Year shall be equal to the product of (A) the General
Partner Cumulative Preference Amount that existed immediately following the
close of the preceding Fiscal Year multiplied by (B) the sum of one (1) plus the
average of the prime rates of interest (expressed as a decimal and based on
annual compounding) on each Friday within the last month of such Fiscal Year as
set forth in the Wall Street Journal.
(d) Income Sharing Percentages. For Fiscal Years 1993, 1994,
1995, and 1996 the Income Sharing Percentages of the General Partner and the
Limited Partner shall be eighty percent (80%) and twenty percent (20%),
respectively. For Fiscal Year 1997 the Income Sharing Percentages of the General
Partner and the Limited Partner shall be seventy percent (70%) and thirty
percent (30%), respectively. For Fiscal Year 1998 the Income Sharing Percentages
of the General Partner and the Limited Partner shall be sixty percent (60%) and
forty percent (40%), respectively. For all periods after Fiscal Year 1998 the
Income Sharing Percentages of the General Partner and the Limited Partner shall
be fifty percent (50%) and fifty percent (50%), respectively.
(e) Net Liquidating Income and Net Liquidating Loss: The net
income and net losses, respectively, of the Partnership as determined in
accordance with generally accepted accounting principles (except as otherwise
expressly set forth in this Agreement), taking into account only those items of
income, gain, loss and expense attributable to sales or other dispositions of
all or any significant portion of the business of the Partnership (other than
sales of inventory in the ordinary course of the Partnership business) and all
other items of income, gain, loss and expense attributable to other than the
ordinary operation of the Partnership business. For purposes of determining Net
Liquidating Income and Net Liquidating Loss, any payment (or deemed payment) to
the Partners pursuant to subparagraph 8.1(b)(iii) (relating to Capital Account
Prime Rate Amounts) shall be accounted for as an item of Partnership expense
taken into account in determining Net Liquidating Income and Net Liquidating
Loss.
(f) Net Operating Income and Net Operating Loss: The net
income and net losses, respectively, of the Partnership as determined in
accordance with generally accepted accounting principles (except as otherwise
expressly set forth herein), taking into account only those items of income,
gain, loss and expense attributable to the ordinary operation of the Partnership
business. For purposes of determining Net Operating Income and Net Operating
Loss, any payment (or deemed payment) to the Partners pursuant to Paragraph 6.2
(relating to Capital Account Prime Rate Amounts) shall be accounted for as an
item of Partnership expense taken in determining Net Operating Income and Net
Operating Loss.
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5.3 Allocation of Net Income and Net Loss.
(a) Net Operating Income for each Fiscal Year, if any, shall
be allocated as follows:
(i) First, one hundred percent (100%) to the Capital
Account of the General Partner until the General Partner shall have been
allocated an amount of Net Operating Income pursuant to this clause (i) for such
Fiscal Year equal to the General Partner Cumulative Preference Amount, if any,
existing immediately prior to the close of such Fiscal Year;
(ii) Next, one hundred percent (100%) to the Capital
Account of the General Partner until the General Partner shall have been
allocated an amount of Net Operating Income pursuant to this clause (ii) for
such Fiscal Year equal to the General Partner Annual Preference Amount, if any,
for such Fiscal Year; and
(iii) Finally, any Net Operating Income remaining after
effecting the allocations set forth in subparagraphs 5.3(a)(i) and 5.3(a)(ii)
above shall be allocated to the Capital Accounts of the General Partner and the
Limited Partner in proportion to their respective Income Sharing Percentages for
such Fiscal Year.
(b) After effecting the allocations provided for in
subparagraph (a) above, Net Liquidating Income, if any, for each Fiscal Year
shall be allocated as follows:
(i) First, one hundred percent (100%) to the Capital
Account of the General Partner until the General Partner shall have been
allocated an amount of Net Liquidating Income pursuant to this clause (i) for
such Fiscal Year equal to the excess, if any, of the General Partner Cumulative
Preference Amount, if any, existing immediately prior to the close of such
Fiscal Year over the amount of Net Operating Income allocated to the General
Partner with respect to such Fiscal Year pursuant to subparagraph 5.3(a)(i)
above;
(ii) Next, one hundred percent (100%) to the Capital
Account of the General Partner until the General Partner shall have been
allocated an amount of Net Liquidating Income pursuant to this clause (ii) for
such Fiscal Year equal to the excess, if any, of the General Partner Annual
Preference Amount, if any, for such Fiscal Year over the amount of Net Operating
Income allocated to the General Partner with respect to such Fiscal Year
pursuant to subparagraph 5.3(a)(ii) above;
(iii) Next, one hundred percent (100%) to the Capital
Account of the General Partner until the General Partner shall have been
allocated an amount of Net Liquidating Income pursuant to this clause (iii) for
such Fiscal Year equal to the sum of the General Partner Annual Preference
Amounts, if any, for all Fiscal Years following such Fiscal Year; and
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(iv) Finally, any Net Liquidating Income remaining
after effecting the allocations set forth in subparagraphs 5.3(b)(i), 5.3(b)(ii)
and 5.2(b)(iii) above shall be allocated to the Capital Accounts of the General
Partner and the Limited Partner in proportion to their respective Income Sharing
Percentages for such Fiscal Year.
(c) Net Operating Loss and Net Liquidating Loss, if any, for
each Fiscal Year (from whatever source derived) shall be allocated equally to
the Capital Account of the General Partner and the Capital Account of the
Limited Partner.
(d) Notwithstanding the foregoing provisions of this
Paragraph 5.3, any item of Partnership expense related to the payment of any
amounts pursuant to Paragraphs 6.2 or 8.1(b)(iii) hereof shall be specially
allocated to the Capital Accounts of the General Partner and Limited Partner in
equal amounts.
(e) Notwithstanding the foregoing provisions of this
Paragraph 5.3, to the extent the Partnership is liable to BMS for breach of the
Trademark License Agreement, all Partnership losses and expenses resulting
directly therefrom shall be allocated to the Capital Account of the General
Partner.
(f) Notwithstanding the foregoing provisions of this
Paragraph 5.3, all Partnership losses and expenses relating directly to the
indemnification of any Partner pursuant to any provision of this Agreement shall
be allocated to the Capital Accounts of the Limited Partner and the General
Partner in equal amounts.
5.4 Reallocation of Negative Balance. Notwithstanding the
foregoing provisions of this Article V:
(i) In no event will an allocation be made to the
Limited Partner if such allocation would cause the Limited Partner's Capital
Account balance to be negative (or increase the amount by which it is negative);
(ii) In the event that the provisions of clause the
allocations that are otherwise required by this Article V, then to the extent
possible without contravening such clause (i) provisions, subsequent allocations
shall be effected so as to cause the Capital Account balances of each Partner to
be equal to the balances that would have existed had no such alteration of
allocations occurred pursuant to clause (i) hereof; and
(iii) To the extent possible without contravening the
provisions of clauses (i) or (ii) above, in the event that the provisions of
clause (i) above apply to alter the allocations that are otherwise required by
this Article V, subsequent allocations shall be effected in a manner that causes
each Partner to have received over the life of the Partnership the same amount
of Net Operating Income, Net Operating Loss, Net Liquidating Income and Net
Liquidating Loss as such Partner would have received had no such alteration of
allocations occurred pursuant to clause (i) hereof.
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ARTICLE VI
WITHDRAWALS BY AND DISTRIBUTIONS AND PAYMENTS TO THE PARTNERS
6.1 Interest and Withdrawals.
(a) Without restricting or limiting Paragraphs 6.2,
8.1(b)(iii) or 5.2(c), no interest shall be paid to any Partner on account of
its interest in the capital of, or on account of its investment in, the
Partnership.
(b) No Partner may withdraw any amount from its Capital
Account unless such withdrawal is made pursuant to this Article VI or is
otherwise expressly permitted by this Agreement.
6.2 Mandatory Payment. Each Partner shall promptly (and in no
event later than ninety (90) days after the end of each of the Partnership's
Fiscal Years) be paid out of any available cash (prior to distributing any such
cash pursuant to the remaining provisions of this Article VI) an amount equal to
the Capital Account Prime Rate Amount for such Partner existing as of the close
of such Fiscal Year. The "Capital Account Prime Rate Amount" for a Partner shall
initially equal zero and shall as of the close of the 1993 Fiscal Year equal the
product of (i) the average positive balance in the Capital Account of such
Partner during such Fiscal Year, multiplied by (ii) a fraction, the numerator of
which is the number of calendar months between the date of this Agreement and
the end of the 1993 Fiscal Year and the denominator of which is twelve (12),
multiplied by (iii) the average of the prime rates of interest (expressed as a
decimal and based on annual compounding) on each Friday within the month of
December of such Fiscal Year as set forth in the Wall Street Journal. The
"Capital Account Prime Rate Amount" for a Partner as of the close of each
succeeding Fiscal Year shall equal the product of (i) the sum of (A) the average
positive balance in the Capital Account of such Partner during such Fiscal Year
plus (B) the excess of the sum of the Capital Account Prime Rate Amounts for
such Partner for each of the preceding Fiscal Years of the Partnership over the
aggregate amounts paid to such Partner with respect to all such preceding Fiscal
Years pursuant to this Paragraph 6.2, multiplied by (ii) the average of the
prime rates of interest (expressed as a decimal and based on annual compounding)
on each Friday within the last calendar month of such Fiscal Year as set forth
in the Wall Street Journal, multiplied by (iii) a fraction, the numerator of
which is the number of calendar months in such Fiscal Year and the denominator
of which is twelve (12). Payments made to a Partner pursuant to this Paragraph
6.2 shall not reduce the Capital Account balance of such Partner.
6.3 Mandatory Cash Distributions of General Partner Preference
Amount. Promptly after the end of each of the Partnership's Fiscal Years (but in
no event later than ninety (90) days after the end of each such Fiscal Year) the
General Partner shall receive a cash distribution from the Partnership equal to
the excess of (i) the aggregate amount of Net Operating Income allocated to the
General Partner for such Fiscal Year and all prior Fiscal Years pursuant to
clauses (i) and (ii) of Paragraph 5.3(a) (relating to the General Partner Annual
Preference
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Amount and General Partner Cumulative Preference Amount) over (ii) the aggregate
cash distributions previously received by the General Partner pursuant to this
Paragraph 6.3.
6.4 Tax Distributions. The General Partner may in its discretion,
or upon the request of the Limited Partner shall, distribute to the Partners
within ninety (90) days of the end of each Fiscal Year up to an amount equal to
forty percent (40%) of the Net Operating Income allocated to the Partners'
Capital Accounts pursuant to clause (iii) of Paragraph 5.3(a) with respect to
such Fiscal Year; provided, however, that (a) no such distribution shall be made
with respect to any Fiscal Year in which the Partnership has a net loss for
federal income tax purposes and (b) such distribution shall be made only to the
extent such distribution is made from cash not reasonably necessary for the
Partnership's operations. In the event that the maximum marginal rate of federal
income tax applicable to corporations is increased or decreased from the rate
applicable as of the date first set forth above, the General Partner shall
adjust such forty percent (40%) figure to take into account such increase or
decrease for the Fiscal Years to which such increase or decrease applies,
provided that the percent figure as adjusted shall not exceed six (6%) percent
plus the maximum marginal federal rate. All distributions to the Partners
pursuant to this Paragraph 6.4 with respect to any Fiscal Year shall be made in
proportion to the amount of Net Operating Income allocated to each such
Partner's Capital Account pursuant to clause (iii) of Paragraph 5.3(a) with
respect to such Fiscal Year.
6.5 Discretionary Distributions of Net Operating Income. Prior to
the Date of Termination, the General Partner may in its discretion make
distributions of cash during any Fiscal Year in addition to those otherwise
required or allowable under this Article VI provided that, at the time of such
distribution, the Partnership has no material indebtedness other than trade
debt. If at any time the Partnership has material indebtedness other than trade
debt or following any cash distribution the Partnership would be expected to be
required to incur material indebtedness other than trade debt on account of such
cash distribution, no such distribution shall be made pursuant to this Paragraph
6.5 without the Special Approval of the Management Committee. All distributions
pursuant to this Paragraph 6.5 shall be made in amounts up to and in proportion
to (i) in the case of the Limited Partner, the excess, if any, of the Capital
Account balance of the Limited Partner as of the commencement of such Fiscal
Year over the Limited Partner's Retained Net Liquidating Income Amount (as
defined in Paragraph 6.6) as of the commencement of such Fiscal Year and (ii) in
the case of the General Partner, the excess, if any, of the Capital Account
Balance of the General Partner as of the commencement of such Fiscal Year over
the sum of the General Partner's Retained Net Liquidating Income Amount (as
defined in Paragraph 6.6) as of the date of the commencement of such Fiscal Year
plus the maximum amount the General Partner would be entitled to receive
pursuant to Paragraph 6.3 as of the commencement of such Fiscal Year.
Notwithstanding the foregoing, in the event that the Limited Partner has been
distributed an amount pursuant to Paragraph 6.9, no distribution shall be made
to the Limited Partner pursuant to this Paragraph 6.5 until the General Partner
has been distributed an amount equal to that distributed to the Limited Partner
pursuant to Paragraph 6.9.
6.6 Distributions of Net Liquidating Income. The General Partner
may, from time to time, in its sole discretion distribute cash to each of the
Partners in amounts up to and in
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proportion to their respective Retained Net Liquidating Income Amounts. The
"Retained Net Liquidating Income Amount" for each Partner at any time shall
equal the excess, if any, of (i) the aggregate amount, if any, of Net
Liquidating Income allocated to the Capital Account of such Partner for all
periods (net of any Net Liquidating Loss so allocated) over (ii) the aggregate
amount of distributions received by such Partner pursuant to this Paragraph 6.6
for all such periods.
6.7 Equivalency Distribution. Commencing on January 1, 1999,
within ninety (90) days of the commencement of each Fiscal Year a Partner with a
Capital Account balance that exceeds the Capital Account balance of the other
Partner (determined as of the close of the immediately preceding Fiscal Year)
shall be distributed the amount of such excess.
6.8 Limitation on Distributions. Notwithstanding the foregoing
provisions of this Article VI, in no event will a Partner receive a distribution
to the extent that such distribution causes such Partner to have a negative
balance in its Capital Account (or increases the amount by which such balance is
negative).
6.9 Limited Partner Return of Capital Distribution. As of
December 15, 1993 (but not after such date), the Limited Partner may at its
option elect to receive a distribution up to an amount equal to the excess of
the amount of the Limited Partner's Initial Contribution over $300,000
(regardless of whether such distribution causes the Limited Partner to have a
negative balance in its Capital Account or increases the amount by which such
balance is negative).
6.10 Tax Distribution Treatment. For purposes of Paragraphs 6.5,
6.7 and 6.8, the Partners' Capital Account balances shall be determined by
treating distributions made or expected to be made pursuant to Paragraph 6.4
within 90 days of the end of a Fiscal Year as if they had been made on the last
day of such Fiscal Year.
ARTICLE VII
MANAGEMENT, DUTIES, AND RESTRICTIONS
7.1 Management. Except as expressly provided herein, the General
Partner shall have the sole and exclusive right to manage, control, and conduct
the business of the Partnership and to do any and all acts on behalf of the
Partnership as deemed proper, convenient or advisable by the General Partner.
7.2 Management Committee. The Partnership shall establish a
management committee (the "Management Committee") in accordance with the terms
of this Agreement.
(a) Authority. The General Partner will consult with and
advise the Management Committee with respect to the Partnership's business and
overall strategy. The General Partner will (i) meet with the Management
Committee on at least a semi-annual basis at which meetings the General Partner
will apprise and inform the Management Committee as to the current status of all
material matters with respect to the business of the Partnership;
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(ii) present to the Management Committee for its review and approval Partnership
Major Decisions (as defined below) and (iii) furnish the Management Committee
with such information with respect to the business and affairs of Partnership as
either the Management Committee or the Limited Partner Designees (as defined
below) may reasonably request from time to time. Unless the Management Committee
approves a Partnership Major Decision, the General Partner shall not take the
action requiring such approval.
(b) Access to Information and Personnel. The Limited Partner
and any member of the Management Committee and their representatives, employees,
counsel and accountants, shall upon reasonable notice to the General Partner or
the Partnership be furnished with, or given access to, such information
(including all books and records) as reasonably requested by such person
relating to the business of the Partnership. Furthermore, any person making such
request shall have the right to review and audit such information (including all
books and records) to its satisfaction. The Limited Partner and any member of
the Management Committee shall further have the right at any time during normal
business hours to meet with employees, accountants, and counsel of the
Partnership and the General Partner to discuss the business and affairs of the
Partnership.
(c) Composition. The Management Committee will consist of
six members, two of which shall be designated by the General Partner ("General
Partner Designees"), two of which shall be designated by the Limited Partner
("Limited Partner Designees"), and two of which shall be designated by mutual
agreement of the General Partner and the Limited Partner (the "Independent
Members"). Each Management Committee member will serve at the pleasure of the
Partner or Partners designating such member and may be replaced, with or without
cause, at any time by such Partner or Partners. An Independent Member of the
Management Committee may be removed or replaced only by mutual agreement of the
General Partner and the Limited Partner. Written notice of replacement of a
designee of one Partner shall be given to the other Partner and shall not be
effective until received.
(d) Quorum; Voting Requirements. A majority of the
authorized number of members of the Management Committee shall constitute a
quorum at any regular or special meeting. No action may be taken at any regular
or special meeting unless a quorum is present at such meeting. The approval of a
majority of the members of the Management Committee present at a meeting at
which the foregoing quorum requirement is satisfied shall be required to take
any action by the Management Committee; provided, however, that the matters
referred to in Paragraph 7.2(j) shall in all events require the approval of at
least one Limited Partner Designee and one General Partner Designee ("Special
Approval").
(e) Regular Meetings. The Management Committee shall meet
regularly at the times and places which it may determine, provided that such
meetings shall be held at least semi-annually. Regular meetings of the
Management Committee may be held without notice at such times and places as the
Management Committee may from time to time determine, provided that reasonable
notice of the first regular meeting following any such determination shall be
given to members absent from the meeting at which such determination was made.
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(f) Special Meetings. A special meeting of the Management
Committee may be called by the Management Committee, the Chairman of the
Management Committee (as defined in Paragraph 7.3 below) or by a Partner.
Special meetings may be held on any date and at any place and time designated in
the call of the meeting, reasonable notice thereof having been given to each
member of the Management Committee.
(g) Meeting by Conference Telephone or Similar
Communications Equipment. Meetings of the Management Committee may be held by
means of conference telephone or similar communications equipment by means of
which all persons participating in a meeting can hear and speak to each other
simultaneously.
(h) Actions by Writing. Any action required or permitted to
be taken at any meeting of the Management Committee may be taken without a
meeting if the number of members of the Management Committee required to approve
such action at a meeting attended by all members consent to the action in
writing and the written consents are filed with the records of the meetings of
the Management Committee. Such consents shall be treated for all purposes as a
vote at a meeting.
(i) Notice. A member of the Management Committee shall be
deemed to have received reasonable notice of a meeting if written notice of the
date, time and place of the meeting is delivered to such member by mail or by
nationally recognized overnight courier at least 3 days in advance of the
meeting. In an emergency, notice of a meeting given orally in person or by
telephone call at least forty-eight (48) hours before the meeting shall
constitute reasonable notice. Notice of a meeting need not be given to any
member of the Management Committee if a written waiver of notice, executed by
the member at any time, is filed with the records of the meeting, or to any
member who attends a meeting without protesting prior thereto or at its
commencement the lack of notice to the member.
(j) Partnership Major Decisions. The "Partnership Major
Decisions" shall be the following:
(1) acquiring or selling any personal property (other than
inventory in the ordinary course of business), real estate (including, without
limitation, entering into leases) or any other acquisition or divestiture
including, without limitation, the acquisition or divestiture of any interest in
any assets or business, in any case involving a price of more than $100,000, if
not contemplated in the Annual Operating and Capital Budget referred to in
paragraph (4) below;
(2) releasing, compromising, assigning or transferring any claim,
right or benefit of the Partnership not in the ordinary course of business where
the amount involved exceeds $100,000;
(3) confessing a judgment or settling a claim against the
Partnership or submitting a Partnership claim to an arbitrator or referee where
the amount involved exceeds $100,000;
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(4) any adoption or material amendment of or, unless out of the
Partnership's reasonable control, material deviation from the Annual Operating
and Capital Budget of the Partnership, provided, however, that if any such
amendment or deviation is the result of any event that would constitute a
Partnership Major Decision (other than pursuant to this subparagraph 7.2(j)(4))
except that it is specifically excluded or does not meet the relevant dollar
threshold, then such amendment or deviation shall not constitute a Partnership
Major Decision pursuant to this subparagraph 7.2(j)(4);
(5) selection of independent certified public accountants for
preparation of the Partnership's financial statements;
(6) the Partnership entering into or amending any material
contract, agreement or other transaction with any affiliate of the Partnership
or any Partner, including, without limitation Axion or any of its affiliates and
BMS or any of its affiliates, but excluding the services arrangements
contemplated by paragraph 7.8;
(7) any merger or consolidation of the Partnership with or into
any other entity, the sale or transfer of all or substantially all the assets of
the Partnership or the dissolution of the Partnership;
(8) the filing by the Partnership of a petition under Title 11 of
the United States Code or any other Federal, State, or foreign bankruptcy,
insolvency, liquidation, receivership or similar law;
(9) a change in the name under which the affairs of the
Partnership shall be conducted, to the extent Special Approval is required under
Paragraph 1.1;
(10) a material change in the purpose of the Partnership, to the
extent Special Approval is required under Paragraph 1.2;
(11) additional capital contributions by the Partners to the
Partnership and related matters to the extent Specials Approval is required
under Paragraph 3.2;
(12) Partnership borrowings in an aggregate amount outstanding at
any one time in excess of $1,000,000 and related matters, to the extent Special
Approval is required under Paragraph 3.3;
(13) discretionary distribution of net operating income and
related matters to the extent Special Approval is required under Paragraph 6.5;
and
(14) approval of the terms of certain contracts or agreements
relating to severance for employees as part of Costs and Termination-Related
Expenses and related matters, to the extent Special Approval is required under
Paragraph 7.8(b)(iii).
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Notwithstanding anything else, no Special Approval shall be
required for any action required or permitted by Paragraph 2.2 of this Agreement
or Section 8 of the Agency Agreement.
7.3 Chairman. The Chief Executive Officer of Axion shall be the
Chairman of the Management Committee.
7.4 No Control by the Limited Partner. The Limited Partner shall
take no part in the control or management of the affairs of the Partnership nor
shall the Limited Partner have any authority to act for or on behalf of the
Partnership except as is specifically permitted by this Agreement.
7.5 Admission of Additional Partners.
(a) No additional person may be admitted to the Partnership,
either as a limited or general partner, without the prior written consent of
both the General Partner and the Limited Partner.
7.6 Transfer of Partnership Interests.
(a) Transfers. Except for Permitted Transfers as set forth
in paragraphs (b) and (c) below, no Partner may directly or indirectly sell,
assign or transfer, including, without limitation, by operation of law or in
connection with a merger, sale of stock, or sale of substantially all the assets
or similar transaction by a Partner (any such transfer is hereinafter called a
"Transfer"), any part or all of the Partnership Interest of such Partner without
the prior written consent of the other Partner which may be withheld in such
Partner's sole discretion. Without limiting the generality of the foregoing, a
Change in Control (as defined in the Sales Agency Agreement) of the General
Partner shall be deemed to constitute a Transfer that shall require the Limited
Partner's consent pursuant to this Paragraph 7.6(a), however, a Change in
Control of Axion shall not be deemed to be a Change in Control of the General
Partner for purposes of this-Paragraph 7.6(a).
(b) Limited Partner Permitted Transfers. The Limited Partner
may at any time, without the consent of the General Partner, Transfer all (but
not less than all) of its Partnership Interest to BMS, or any entity wholly
owned, directly or indirectly, by BMS; provided, however, that the transferee
shall possess the legal capacity to fulfill the obligations of the Limited
Partner hereunder (such transferee being a "Permitted Transferee").
Notwithstanding the provisions of subparagraphs (a) and (b), the Partnership
Interest of the Limited Partner shall at all times be held by a person that
would be a Permitted Transferee of the Limited Partner's Partnership Interest.
The Limited Partner shall notify the General Partner of any such Transfer at
least ten days prior to the date of the Transfer. Upon request by the General
Partner, the Limited Partner promptly shall provide to the General Partner
information reasonably adequate to permit the General Partner to evaluate the
adequacy of the legal capacity of the Permitted Transferee. A Change in Control
of the Limited Partner shall at all times
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constitute an unpermitted Transfer under this Paragraph 7.6(b) and require the
consent of the General Partner.
(c) General Partner Permitted Transfers. The General Partner
may at any time, without the consent of the Limited Partner, Transfer all (but
not less than all) of its Partnership interest to Axion or any entity wholly
owned, directly or indirectly, by Axion; provided, however, that the transferee
shall possess the legal capacity to fulfill the obligations of the General
Partner hereunder (such transferee being a "Permitted Transferee").
Notwithstanding the provisions of paragraphs (a) and (c), the Partnership
Interest of the General Partner shall at all times be held by a person that
would be a Permitted Transferee of the General Partner's Partnership Interest.
The General Partner shall notify the Limited Partner of any such proposed
Transfer at least ten days prior to the date of the Transfer. Upon request by
the Limited Partner, the General Partner promptly shall provide to the Limited
Partner information reasonably adequate to permit the Limited Partner to
evaluate the adequacy of the legal capacity of the Permitted Transferee. A
Change in Control of the General Partner shall at all times constitute an
unpermitted Transfer under this Paragraph 7.6(c) and require the consent of the
Limited Partner; provided, however, that a Change in Control of Axion shall not
constitute a Change in Control of General Partner for purpose of this Paragraph
7.6(c).
(d) No Transfer or other disposition of the interest of a
Partner shall be permitted until the Management Committee shall have received,
or waived receipt of, an opinion of counsel satisfactory to it that the effect
of such transfer or disposition would not:
(i) result in a violation of the Securities Act;
(ii) require the Partnership to register as an
investment company under the Investment Company Act of 1940, as amended;
(iii) require the Partnership, the General
Partner, or any partner of the General Partner to register as an investment
adviser under the Investment Advisers Act of 1940, as amended;
(iv) result in a termination of the Partnership
for tax purposes;
(v) result in a violation of any law, rule, or
regulation by the Limited Partner, the Partnership, the General Partner, or any
partner of the General Partner; or
(vi) increase the number of Limited Partners.
(e) A Permitted Transferee shall upon satisfaction of all of
the requirements set forth above in this Paragraph 7.6, become a substituted
Limited Partner (in the case of a transfer by the Limited Partner) or
substituted General Partner in the case of a transfer by the General Partner by
(i) delivery of written notice of election to become a substituted Limited
Partner or General Partner, as the case may be, to the Partnership and (ii)
executing and acknowledging such other instruments as the nontransferring
Partner may reasonably deem necessary or advisable to effect the admission of
such Permitted Transferee as a substituted
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Partner including, without limitation, the written acceptance and adoption by
such Permitted Transferee of the provisions of this Agreement. No Transfer shall
be effected pursuant to Paragraphs 7.6(b) or (c) above until such time as the
requirements of clauses (i) and (ii) of the preceding sentence shall have been
satisfied. No consent of the nontransferring Partner shall be required to effect
the substitution of a Partner as provided in this Paragraph 7.6(e).
Such legal opinion shall be provided to the Management Committee
by the transferring Partner or the proposed transferee, and all reasonable costs
associated with such opinions shall be borne by the transferring Partner or the
proposed transferee.
7.7 Deadlock; Dispute. If there is a deadlock or dispute
regarding the Partnership (whether between the Partners or at the Management
Committee level or otherwise), the Partners will use their good faith best
efforts and act reasonably to resolve the dispute or deadlock. If these efforts
are unsuccessful, either Partner may request non-binding mediation with respect
to any dispute or deadlock, and the non-requesting Partner shall be required
to submit thereto and both Partners shall act reasonably and in good faith with
respect thereto. All costs of mediation incurred by the Partners pursuant to
this Paragraph 7.7 shall be paid by the Partnership.
7.8 Services; Reimbursement.
(a) Services. The General Partner shall provide to the
Partnership such administrative and operational and other services as may be
needed by the Partnership to conduct its business ("Services"), including,
without limitation, the following:
(i) General administrative services, including the
overall supervision and administration of the operation of the Partnership's
business;
(ii) Bookkeeping and accounting services to
support the operation of the Partnership's business;
(iii) Employment of such personnel as may be
reasonably necessary for the performance of the Partnership's business; and
(iv) Distribution, warehousing, marketing, sales,
information management, accepting orders for the Partnership's account or under
the Sales Agency Agreement, billing, collection and other services necessary for
the operation of the Partnership's business;
provided, however, that Services will be on a reasonable efforts basis and that
the General Partner shall not be required to provide Services for which the
Costs (as defined below) associated therewith will not be reimbursed by the
Partnership. The Partnership will not seek another source of Services. To the
extent the General Partner is not capable of providing such Services on the
foregoing terms, it shall cause Axion to do so on its behalf and, so long as
Axion does so, the General Partner will not be deemed in breach under this
Paragraph 7.8.
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(b) Reimbursement of Costs. The Partnership shall reimburse
the General Partner for its costs (determined in accordance with Exhibit B)
("Costs") of performing Services contemplated by this Agreement. Initially
estimated Costs for each Fiscal Year will be included in the Partnership's
Annual Operating and Capital Budget for such year. A budget for the period
before August 23, 1993 will be submitted to and approved by the Limited Partner;
such budget will include for reimbursement certain costs incurred before the
date of this Agreement. For Services Axion provides, the General Partner will
pass on to the Partnership only Axion's Costs and will reimburse Axion for such
Costs out of its reimbursement from the Partnership.
(i) The Partnership shall make monthly payments to
the General Partner for estimated Costs to be incurred in the ensuing month. The
Partnership shall pay within 30 days of invoice any Costs exceeding such
estimated payments. Any overpayment shall be deducted from subsequent estimated
payments.
(ii) The reimbursement of Costs pursuant hereto
shall include those expenses incurred in connection with the termination or
winding down of the Partnership or the termination or winding down of Services
to the Partnership or termination of General Partner or Axion employees
performing Services ("Termination-Related Expenses") including, without
limitation, expenses incurred after termination pursuant to arrangements made
prior to termination. The General Partner will use reasonable efforts to
minimize Termination Related Expenses.
(iii) The terms of any contract or other
arrangement expected to be entered into by the General Partner or Axion that may
result in Termination-Related Expenses will be included in the relevant Annual
Operating and Capital Budget; provided, however, that (A) severance payments to
officers of the General Partner or Axion that do not exceed $50,000 to an
individual or $200,000 in the aggregate, (B) severance payments to non-officer
employees of the General Partner or Axion that do not exceed amounts paid under
BMS's severance policy to comparable employees and (C) any contract or
arrangement that would not result in reimbursement of Termination-Related
Expenses that exceed $50,000 for that contract or arrangement, shall be deemed
acceptable whether or not described in the Annual Operating and Capital Budget.
(c) If a Partner purchases the Partnership Interest of the
other Partner pursuant to Paragraph 2.2 of this Agreement, the arrangement set
forth in this Paragraph 7.8 will continue in effect for the later of one year
after the Closing or the expiration of the Term and the Extended Term of the
Sales Agency Agreement, if any, as such terms are defined in the Sales Agency
Agreement on the date of this Agreement, with the purchasing Partner substituted
for the Partnership (except that the Services will not be expanded beyond or
significantly changed from those provided to the Partnership during the
Partnership Term).
(d) The Partnership shall be entitled to have an independent
nationally recognized certified public accounting firm reasonably acceptable to
the Partners and Axion, audit during normal business hours, the relevant
accounting, books and records of the General
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Partner and Axion with respect to reimbursed Costs and Termination-Related
Expenses provided that such audits shall be conducted reasonably and limited to
one per year, that the audited entity is given reasonable notice and that the
accounting firm shall be obligated to hold the audited information and audit
results in confidence except as necessary to disclose to the Partners
non-compliance with the terms of Paragraph 7.8(b).
(e) Third Party Beneficiary. Axion is a third party
beneficiary of this Paragraph 7.8.
7.9 Restrictions on General Partner; Existing Accounts Receivable
and Inventory. After the effective date of the Sales Agency Agreement, none of
the General Partner, Axion or their respective Controlled Affiliates other than
the Partnership shall, during the Partnership Term, directly or indirectly,
engage in the Oncology Distribution Business, or, other than in connection with
clinical trials or research, distribute any third party oncology product to the
Customer Group, except through the Partnership; provided that such restriction
shall not apply in cases where the General Partner, Axion or their respective
Controlled Affiliates (as applicable) do not have the right to distribute a
particular product exclusively through the Partnership. The Partners agree, for
the benefit of Axion, that although not contributed to the Partnership, (i) the
Partnership will use its best efforts to collect existing accounts receivable
related to the Oncology Therapeutics Network business and will promptly (but no
later than 5 days after receipt) remit any such amounts received to Axion, and
(ii) the Partnership will use its best efforts to sell any Inventory (as defined
below) held by Axion on the date hereof and to collect any receivables with
respect to any Inventory so sold, and will promptly (but in no event later than
5 days after receipt) remit any such amounts received to Axion, up to an amount
equal to Axion's total cost basis in such Inventory, and any excess of such
sales proceeds over such cost basis shall be retained by the Partnership in
consideration of such sales. The Partnership will be charged under Paragraph 7.8
for services in connection with clause (ii), but not clause (i), of the
immediately preceding sentence. "Inventory" shall mean the saleable inventory
(including, without limitation, all inventories of pharmaceutical products,
active shipments and consigned goods whether located on the premises of Axion or
General Partner, in transit to or from such premises, in storage facilities, or
otherwise) owned by Axion on August 22, 1993 (but not including products of
Bristol-Myers Squibb Company or its affiliates).
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.1 Liquidation Procedures. Upon expiration of the Partnership
Term or upon the occurrence of early termination as described in Paragraph 2.1
above:
(a) The affairs of the Partnership shall be wound up and the
Partnership shall be dissolved.
(b) The assets of the Partnership shall be applied to
payment of liabilities of the Partnership and paid and distributed to the
Partners in the following order:
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(i) to the creditors of the Partnership, other
than Partners (but including affiliates of Partners), in the order of priority
established by law;
(ii) to the Partners, in repayment of any loans
made to the Partnership;
(iii) to each of the Partners, a payment of an
amount equal to the Capital Account Prime Rate Amount for such Partner existing
immediately prior to the close of the Partnership's final Fiscal Year (which
payment shall not reduce the Capital Account balance of the Partner receiving
such payment); and
(iv) to the Partners, amounts equal to (and in
proportion to) the positive balances in their closing Capital Accounts. Without
limiting the generality of the foregoing and notwithstanding the parenthetical
in Paragraph 3.4, except as required by law neither the General Partner nor the
Limited Partner shall ever (either during the Partnership Term or upon
liquidation of the Partnership) have an obligation under this Agreement to make
any payments to the Partnership with respect to a negative balance in its
Capital Account or the Capital Account of the other Partner.
(c) If requested by the Limited Partner or the General
Partner, the Partners and the Partnership shall use their best efforts to
distribute in-kind the assets of the Partnership as provided above such that
each Partner at its election shall receive the non-cash assets that it initially
contributed to the Partnership; provided, however, that the aggregate amount of
cash and the fair market value of other assets distributed to each Partner
pursuant to this Article VIII shall be in an amount equal to the amount each
such Partner would have received if all of the assets of the Partnership had
been sold at their fair market values for cash and the proceeds had been paid
and/or distributed pursuant to clauses (i) through (iv) of Paragraph 8.1(b).
(d) The foregoing liquidation procedures shall be subject to
the provisions of Paragraph 2.2 relating to the sale and purchase of a Partner's
Partnership Interest in certain circumstances following the expiration of the
Partnership Term. Accordingly, neither dissolution nor liquidation shall occur
during the purchase option exercise period specified in Paragraph 2.2(a) and, if
a Partner's Partnership Interest is being so purchased, neither dissolution nor
liquidation shall occur prior to the Closing thereof.
8.2 Final Allocations: Date of Termination.
(a) The "Date of Termination" shall mean the date on which
the term of the Partnership terminates pursuant to Paragraph 2.1 above.
(b) The closing Capital Accounts of all the Partners shall
be computed as of the Date of Termination as if the Date of Termination were the
last day of a Fiscal Year, and then adjusted in the following manner:
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(i) All assets and liabilities (including
contingent liabilities and including the liability to make payments to the
Partners in an amount equal to their respective Capital Account Prime Rate
Amounts) of the Partnership shall be valued at their respective fair market
values as of the Date of Termination.
(ii) The resulting net amount of the unrecognized
gain or loss on the Partnership's assets and liabilities as of the Date of
Termination shall be deemed to have been recognized (pursuant to a deemed sale
of the Partnership's assets and deemed payment of the Partnership's liabilities)
and shall be allocated to the Capital Accounts of the Partners as Net
Liquidating Income or Net Liquidating Loss in accordance with the provisions of
Article V. Any income, gain, loss or expense resulting from operations of the
Partnership or other events occurring after the Date of Termination shall also
be allocated to the Capital Accounts of the Partners as Net Liquidating Income
or Net Liquidating Loss in accordance with the provisions of Article V;
provided, however, that appropriate adjustments shall be made in accordance with
generally accepted accounting principles so as to avoid taking into account any
item of income, gain, loss or expense more than once pursuant to operation of
this sentence and the immediately preceding sentence.
ARTICLE IX
FINANCIAL ACCOUNTING AND REPORTS
9.1 Financial and Tax Accounting and Reports.
(a) The General Partner shall cause the Partnership's
federal, state, local and foreign income (and franchise) tax returns to be
prepared and delivered in a timely manner to the Partners (but in no event later
than ninety (90) days after the close of each of the Partnership's Fiscal
Years). The books and records of the Partnership and the General Partner shall
be kept in accordance with the provisions of this Agreement and otherwise in
accordance with generally accepted accounting principles consistently applied.
The Partnership's financial statements for each Fiscal Year shall be prepared in
accordance with generally accepted accounting principles consistently applied
and shall be audited at the end of each Fiscal Year by an independent certified
public accountant of recognized national standing selected by the General
Partner.
(b) Any election of the Partnership for federal, state,
local or foreign income (including franchise) tax purposes shall only be
permitted to be made after consultation between the General Partner and the
Limited Partner and the joint consent of the General Partner and the Limited
Partner of the election to be made by the Partnership, which consent may be
granted or denied in the sole discretion of either the General Partner or the
Limited Partner. If the General Partner and the Limited Partner disagree as to
the making of any election pursuant to this Paragraph 9.1(b), the making of any
such election shall be determined pursuant to the provisions of Paragraph 10.17.
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9.2 Supervision; Inspection of Books. Proper and complete books
of account of the affairs of the Partnership and the General Partner shall be
kept under the supervision of the General Partner at the principal office of the
Partnership. Such books shall be open to inspection by the Limited Partner, at
any reasonable time, upon reasonable notice, during normal business hours.
9.3 Quarterly Reports; Monthly Reports. Beginning with the Fiscal
Quarter ending September 30, 1993, the General Partner shall transmit to the
Limited Partner within forty-five (45) days after the close of each of the first
three Fiscal Quarters of each Fiscal Year, financial statements of the
Partnership prepared in accordance with generally accepted accounting principles
from its books without audit and subject to year-end adjustments. The General
Partner shall transmit to the Limited Partner within thirty (30) days after the
close of each month, financial statements of the Partnership prepared in
accordance with generally accepted accounting principles from its books without
audit and subject to year-end adjustments.
9.4 Annual Report; Financial Statements of the Partnership Income
Tax Returns. The General Partner shall transmit to the Limited Partner within
ninety (90) days after the close of each of the Partnership's Fiscal Years,
beginning with the Fiscal Year ending December 31, 1993, audited financial
statements of the Partnership prepared in accordance with generally accepted
accounting principles, including an income statement for the year then ended and
balance sheet as of the end of such year, and a statement of changes in
Partners' Capital Accounts. The financial statements shall be audited by an
independent public accounting firm of recognized national standing. The
financial statements shall be accompanied by (i) a report from the General
Partner to the Limited Partner, which shall include a status report on the
business of the Partnership during the Fiscal Year then ended and (ii) a copy of
the Partnership's federal, state, local and foreign income (and franchise) tax
returns for the Fiscal Year then ended.
9.5 Annual Operating and Capital Budget. At least thirty (30)
days prior to the beginning of each Fiscal Year, the General Partner shall
submit to the Management Committee, an annual operating and capital budget
of the Partnership for such Fiscal Year (such budget, in the form approved
by the Management Committee, is referred to herein as the "Annual Operating and
Capital Budget"). The Annual Operating and Capital Budget for each Fiscal Year
shall set forth in reasonable detail the budgeted operating and capital
revenues and expenses of the Partnership for such Fiscal Year, including
estimated Costs for Services to be incurred pursuant to Paragraph 7.8 and any
estimated financing to be incurred by the Partnership. The Annual Operating and
Capital Budget for the Fiscal Year ending December 31, 1993 shall be submitted
to the Management Committee within 30 days after the date of this Agreement. The
Annual Operating and Capital Budget for each Fiscal Year shall require the
Special Approval of the Management Committee as provided in Paragraph 7.2(j)(4).
Until such approval is obtained, the Partnership will be restricted during the
applicable Fiscal Year to operating in the ordinary course.
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ARTICLE X
OTHER PROVISIONS
10.1 Execution and Filing of Documents. Concurrently with the
execution of this Agreement, the General Partner shall execute and file a
Certificate of Limited Partnership conforming to the requirements of the
Delaware Revised Uniform Limited Partnership Act in the office of the Secretary
of State of the State of Delaware and shall execute a fictitious business name
statement and file or cause such statement to be filed if required by Delaware
law.
10.2 Other Instruments and Acts. The Partners agree to execute
any other instruments or perform any other acts that are or may be reasonably
necessary to effectuate and carry on the partnership created by this Agreement.
10.3 Binding Agreement. This Agreement shall be binding upon the
transferees, successors, assigns, and legal representatives of the Partners.
10.4 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents made and to be performed entirely within Delaware.
10.5 Publicity and Press Releases. Except to the extent required
under applicable laws or the rules of a stock exchange or automated quotation
system, the parties agree that no press releases or other publicity relating to
the existence or terms contained herein will be made without joint approval
which approval shall not be unreasonably withheld. Written material submitted
for approval shall, if not disapproved within forty-eight (48) hours of receipt,
be deemed approved.
10.6 Notices. Any notice or other communication that a Partner
desires to give to another Partner shall be in writing, and shall be deemed
effectively given upon personal delivery, delivery by nationally-recognized
overnight courier, or upon deposit in any United States mail box, by registered
or certified mail, postage prepaid, or upon transmission by telegram or
telecopy, addressed to the other Partner at the address shown below or at such
other address as a Partner may designate by written notice in accordance with
this Paragraph 10.6.
(i) if to General Partner,
Oncology Therapeutics Network Corporation
In care of Axion Pharmaceuticals, Inc.
395 Oyster Point Blvd.
Suite 405
South San Francisco, CA 94080
Tel: (415) 952-8400
Fax: (415) 952-5675
Attention: Michael D. Goldberg
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with a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Tel: (415) 496-2900
Fax: (415) 496-2733
Attn: Robert V. Gunderson, Jr., Esq.
(ii) if to Limited Partner,
Bristol-Myers Oncology Therapeutic Network, Inc.
In care of Bristol-Myers Squibb Company
P.O. Box 4500
Princeton, NJ 08543
Tel: (609) 897-2234
Fax: (609) 897-6078
Attention: David T. Bonk, Esq. and Brian Markison
with a copy to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019-7415
Tel: (212) 474-1160
Fax: (212) 474-3700
Attention: W. Clayton Johnson, Esq.
10.7 Amendment. This Agreement may be amended only with the
written consent of the General Partner and the Limited Partner.
10.8 Effective Date. The Limited Partnership Agreement shall be
effective on the date that the Certificate of Limited Partnership of the
Partnership is filed with the office of the Secretary of State of the State of
Delaware.
10.9 Entire Agreement. This Agreement constitutes the entire
agreement of the Partners and supersedes all prior agreements between the
Partners with respect to the Partnership.
10.10 Titles; Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and shall not be considered in the
interpretation of this Agreement.
10.11 Partnership Name. Subject to the provisions of Paragraph
1.1 of this Agreement and the Trademark License Agreement, the Partnership shall
have the exclusive ownership and right to use the Partnership name (and any name
under which the Partnership shall elect to conduct its affairs) as long as the
Partnership continues.
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10.12 Exculpation. None of the General Partner, its officers,
directors, stockholders, employees, or affiliates, the Limited Partner, its
officers, directors, stockholders, employees or affiliates, the Chairman of the
Management Committee or any other officer of the Partnership or the members of
the Management Committee shall be liable to the Partnership or any Partner for
mistakes of judgment, or for action or inaction (unless they constitute a breach
of any term, covenant or condition contained in this Agreement or any other
agreement to which any of the foregoing and the Partnership are parties or the
gross negligence or willful misconduct by any such person in the performance of
its obligations under this Agreement or any such agreement) or for losses due to
such mistakes, action, or inaction, or to the negligence, dishonesty, or bad
faith of any employee, broker, or other agent of the Partnership. The General
Partner, the Limited Partner, the Chairman of the Management Committee and other
officers of the Partnership, and members of the Management Committee may consult
with counsel and accountants in respect of Partnership affairs and be fully
protected and justified in any action or inaction that is taken in accordance
with the advice or opinion of such counsel or accountants, provided that they
shall have been selected with reasonable care. Notwithstanding any of the
foregoing to the contrary, the provisions of this Paragraph 10.12 and of
Paragraph 10.13 hereof shall not be construed so as to relieve (or attempt to
relieve) any person of any liability by reason of a breach of any term, covenant
or condition contained in this Agreement or any other agreement to which any of
the foregoing and the Partnership are parties or the gross negligence or willful
misconduct by any such person in the performance of its obligations under this
Agreement or any such other agreement or to the extent (but only to the extent)
that such liability may not be waived, modified or limited under applicable law,
but shall be construed so as to effectuate the provisions of this Paragraph
10.12 and of Paragraph 10.13 to the fullest extent permitted by law.
10.13 Indemnification. The Partnership agrees to indemnify, out
of the assets of the Partnership only, the General Partner and its affiliates
(and any officer, director, stockholder or employee of the General Partner or
any of its affiliates), its agents, the Chairman of the Management Committee,
any other officer of the Partnership and members of the Management Committee
and the Limited Partner and its affiliates (and any officer, director,
stockholder or employee of the Limited Partner or any of its affiliates) to the
fullest extent permitted by law and to save and hold them harmless from and in
respect of all (a) fees (including attorneys' fees), costs, and expenses paid
in connection with or resulting from any claim, action, or demand against the
General Partner, the Limited Partner, any officer, director, stockholder or
employee of the General Partner or the Limited Partner, the Chairman of the
Management Committee, any member of the Management Committee, the Partnership
(or any of its officers), or any of their agents that arise out of or in any way
relate to the Partnership, its properties, business, or affairs, as such fees,
costs and expenses are incurred, and (b) such claims, actions, and demands and
any losses or damages resulting from payments to third parties on account of
such claims, actions, and demands, including amounts paid in settlement or
compromise of any such claim, action or demand and (c) solely with respect to
the General Partner, any liability for penalties, fines or the like owed to any
taxing jurisdiction resulting from the filing of a tax return or the taking of
(or failure to take) any other action, in each case by the General Partner
on behalf of the Partnership and in compliance with the determination of the
Arbitrator pursuant to Paragraph 10.17 (but only
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to the extent such liability is incurred by the General Partner in its capacity
as general partner of the Partnership); provided, however, that this indemnity
shall not extend with respect to any such person (or any officer, director,
stockholder or employee thereof) to (i) any breach by any such person of any
term, covenant or condition contained in this Agreement or (ii) from the gross
negligence or willful misconduct by any such person in the performance of its
obligations under this Agreement or (iii) any obligation of or breach by any
such person under another agreement it has with the Partnership or any liability
or expense of the Partnership arising therefrom or (iv) failure to comply with
the determination of the Arbitrator pursuant to Paragraph 10.17. The indemnities
provided by this paragraph will survive the termination or dissolution of this
Agreement for any reason, and will survive any Transfer of a Partner's
Partnership Interest with respect to the period during which such transferring
Partner was deemed a Partner under the terms of this Agreement. Notwithstanding
the foregoing provisions of this Paragraph 10.13, in no event will either
Partner be indemnified hereunder for liability to any taxing jurisdiction
(including, without limitation, liability for taxes, penalties and interest)
resulting directly or indirectly from the manner in which such Partner reflected
the operations of the Partnership on such Partner's own tax returns.
10.14 Tax Matters Partner. The General Partner shall be the
Partnership's Tax Matters Partner ("TMP"). The TMP shall employ experienced tax
advisors to represent the Partnership in connection with any audit or
investigation of the Partnership by the Internal Revenue Service ("IRS"), or any
state, local, or foreign taxing authority and in connection with all subsequent
administrative and judicial proceedings arising out of such audit or
investigation. The fees and expenses of such, and all other reasonable expenses
incurred by the TMP in serving as the TMP, shall be Partnership expenses and
shall be paid by the Partnership. Notwithstanding the foregoing, it shall be the
responsibility of the General Partner and of the Limited Partner, at their
expense, to employ tax advisors to represent their respective separate
interests. If the TMP is required by law or regulation to incur fees and
expenses in connection with tax matters not affecting each of the Partners, then
the TMP may, with the, Special Approval of the Management Committee (which
approval shall not be unreasonably withheld), seek reimbursement from or charge
such fees and expenses to the Capital Accounts of those Partners on whose behalf
such fees and expenses were incurred. The TMP shall keep the Limited Partner
informed of all administrative and judicial proceedings, as required by Section
6223(g) of the Code, shall provide any other information as reasonably requested
by the Limited Partner with respect to any audit, investigation and
administrative or judicial proceeding, and shall furnish a copy of each notice
or other communication received by the TMP from the IRS or any state, local or
foreign taxing authority, except such notices or communications as are sent
directly to the Limited Partner by the IRS or such other taxing authority. The
TMP agrees that, except as otherwise required by applicable law, in conducting
any such audit, investigation and administrative or judicial proceeding, (a) it
shall consult with and act upon any instructions given by the Limited Partner
and (b) if the TMP disagrees with any such instructions, the actions to be taken
by the TMP shall be determined pursuant to the provisions of Paragraph 10.17. To
the fullest extent permitted by law, out of the assets of the Partnership only,
the Partnership agrees to indemnify the TMP and its agents and save and hold
them harmless, from and in respect to all (i) reasonable fees, costs and
expenses in connection with or resulting from any claim, action, or demand
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against the TMP, the General Partner or the Partnership that arise out of or in
any way relate to the TMP's status as TMP for the Partnership, and (ii) all such
claims, actions, and demands and any losses or damages therefrom, including
amounts paid in settlement or compromise of any such claim, action, or demand;
provided that this indemnity shall not extend to conduct by the TMP adjudged (A)
to be a breach by the TMP of any term, covenant or condition contained in this
Agreement, unless the conduct causing such breach was required by any law or
regulation applicable to the General Partner or (B) to have resulted from the
gross negligence or willful misconduct of the TMP with respect to its
obligations under this Agreement. The indemnity provided by this paragraph will
survive the termination or dissolution of this Agreement for any reason.
Notwithstanding anything in this Agreement to the contrary, without the joint
consent of the General Partner and the Limited Partner, which consent may be
denied in either Partner's sole discretion, the TMP (a) shall not extend any
applicable statute of limitations for the imposition of any tax, (b) shall not
settle or compromise any claim by the IRS or any state, local or foreign taxing
authority, (c) protest or appeal any administrative or proposed administrative
action by the IRS or any state, local or foreign taxing authority or (d)
institute in court any proceeding or appeal any judgment from a judicial
proceeding, in each case to the extent such claim, action, proceeding or
judgment relates to taxes imposed on the Partnership or any Partner. If the
General Partner and the Limited Partner disagree as to any action to be taken by
the TMP (other than any action required to be taken by the TMP pursuant to
applicable law) or disagree as to any other matter relating to this Paragraph
10.14 (including, without limitation, the interpretation or application of any
law), then actions to be taken by the TMP, or such other disagreement, shall be
resolved pursuant to the provisions of Paragraph 10.17.
10.15 Taxation as Partnership. Each of the General Partner and
the Limited Partner agree to use its best efforts to avoid taking any action
that would cause the Partnership to be classified as other than a partnership
for federal, and applicable state, local and foreign income (and franchise)
tax purposes.
10.16 Authorization. All corporate action on the part of each
party hereto necessary for the authorization, execution and delivery of this
Agreement and the performance of all obligations hereunder has been taken. The
persons executing this Agreement have due power and authority to so execute this
Agreement.
10.17 Arbitration; Cooperation. If the General Partner and the
Limited Partner disagree as to the making of any tax election, the form or
content of any tax return proposed to be filed by the Partnership, or the
resolution of any other issue or the making of any other decision relating to
taxes, the Partners shall promptly submit such disagreement to a mutually agreed
upon arbitrator (the Arbitrator), who shall be a partner of a law firm, or a
partner of a "big six" accounting firm, in either case expert in income or
franchise tax matters, as applicable, for prompt, binding resolution. In the
event the parties are unable to mutually agree upon the Arbitrator, they hereby
agree that the head of the Tax Section of the American Institute of Certified
Public Accountants shall select the Arbitrator. All fees of the Arbitrator shall
be paid one half by the General Partner and one half by the Limited Partner. The
Arbitrator, once initially selected, shall continue to serve with respect to any
future disagreement between the Partners subject to this Paragraph 10.17 until
such time as the Partners jointly decide to dismiss such
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arbitrator. In rendering his determination, the Arbitrator shall have complete
discretion and shall not be required to choose an alternative advocated by the
General Partner or Limited Partner; provided, however, that in making his
determination, the Arbitrator shall resolve to take such course of action as he
believes will most likely minimize the aggregate tax liabilities of the Partners
and their Affiliates without unduly benefiting or harming any particular Partner
or its Affiliates. Each of the Partners (and their respective Affiliates) shall
cooperate with each other (and with the Arbitrator) in the implementation of any
determination of the Arbitrator.
ARTICLE XI
MISCELLANEOUS DEFINITIONS
11.1 Agreement. This Limited Partnership Agreement of Oncology
Therapeutics Network Joint Venture, L.P.
11.2 Certificate of Limited Partnership. The Certificate of
Limited Partnership of Oncology Therapeutics Network Joint Venture, L.P.
11.3 Code. The Internal Revenue Code of 1986, as amended from
time to time (and any corresponding provisions of succeeding law).
11.4 Partnership Interest. As to any Partner, means such
Partner's entire right and interest as a Partner in the Partnership, including,
without limitation, such Partner's Capital Account, right to distributions and
all other rights under this Agreement.
ARTICLE XII
MISCELLANEOUS TAX COMPLIANCE PROVISIONS
12.1 Income Tax Allocations. To the maximum extent permitted by
the Code and the rules and Treasury Regulations promulgated thereunder,
Partnership income, gain, loss, deduction, or credit for income tax purposes
shall be allocated in a manner that fairly and accurately reflects the economic
arrangement among the Partners pursuant to this Agreement.
(a) The General Partner shall prepare the Partnership's
federal, state, local and foreign (and franchise) tax returns (and elections)
and shall transmit a copy of any such return (or election) to the Limited
Partner for the Limited Partner's review of such return (or election) forty-five
(45) days prior to the filing of such return (or election) and shall not file
any such return (or election) without the Limited Partner's consent. If, within
thirty (30) days of receipt of such return (or election) from the Partnership,
the Limited Partner does not notify the General Partner of any recommended
changes to such return (or election) the Limited Partner shall have been
conclusively presumed to have consented to the filing of such return (or
election) as received by it. The General Partner shall timely file any such
return (or election) along with the amount of tax shown to be due on such return
(or election) with the appropriate taxing jurisdiction.
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(b) Notwithstanding anything in Paragraph 12.1(a) to the
contrary, the General Partner agrees to consult with the Limited Partner with
respect to the preparation of the Partnership's federal, state, local and
foreign income (and franchise) tax returns and elections, including without
limitation, (a) the calculation of the Partnership's taxable income for federal,
state, local and foreign income (and franchise) tax purposes and (b) the
allocation to the Partners of the Partnership's income, gain, loss, deduction
and credit for federal, state, local and foreign income (and franchise) tax
purposes. In the event that the Partners do not agree on any aspect of any of
the Partnership's federal, state, local and foreign income (and franchise) tax
returns or elections (including the failure to adopt any recommended changes
made by the Limited Partner) or on a calculation or allocation as described in
clauses (a) and (b) of the immediately preceding sentence the action to be taken
with respect to such aspect or calculation or allocation shall be determined
pursuant to the provisions of Paragraph 10.17.
(c) Notwithstanding the foregoing provisions of this
Paragraph 12.1, in the event any tax election must be made sooner than ninety
(90) days after the event that triggered the availability of the election (such
period of time is hereafter referred to as the "Election Period"), the
forty-five (45) day period referred to in Paragraph 12(a) shall be reduced to a
period equal to one-half (1/2) of the Election Period and the thirty (30) day
period referred to in Paragraph 12.1(a) shall be reduced to a period equal to
one-third (1/3) of the Election Period.
12.2 Withholding. The Partnership shall at all times be entitled
to make payments with respect to any Partner in amounts required to discharge
any obligation of the Partnership to withhold or make payments to any
governmental authority with respect to any federal, state, local or other
jurisdictional tax liability of such Partner arising as a result of such
Partner's Partnership Interest. The General Partner shall cause the Partnership
to pay the amount of any such withholding or other payments to the applicable
government authority and shall supply each Partner with a receipt evidencing
such payment. To the extent each such payment satisfies an obligation of the
Partnership to withhold with respect to any distribution to a Partner on which
the Partnership did not withhold or with respect to any Partner's allocable
share of the income of the Partnership, each such payment shall be deemed to be
a loan by the Partnership to such Partner (which loan shall be deemed to be
immediately due and payable) and shall not be deemed a distribution to such
Partner. The amount of such payments made with respect to such Partner, plus
interest, on each such amount from the date of each such payment until such
amount is repaid to the Partnership at an interest rate per annum equal to the
Prime Rate, shall be promptly repaid to the Partnership by the Partner. The
Partnership may, in its discretion, defer making distributions to any Partner
that owes amounts to the Partnership pursuant to this Paragraph 12.2 until such
amounts are paid to the Partnership (or, alternatively, may deduct such amounts
from amounts distributable by the Partnership to such Partner and such deducted
amounts will be treated as having been repaid) and may in addition exercise any
other rights of a creditor on behalf of the Partnership with respect to such
amounts.
12.3 Other Tax Returns. Except as provided in Section 3(f) of the
Sales Agency Agreement and in Paragraph 12.1(a), (i) the General Partner shall
prepare any report, return or statement (collectively a "report") that is
required to be filed by the Partnership with respect to any sales, use,
property, license or rental taxes and any other taxes and shall transmit to
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the Limited Partner a copy of any such report for the Limited Partner's review
ten (10) days prior to the filing of such report and shall not file any such
report without the Limited Partner's prior consent; (ii) if, within seven (7)
days of receipt of such report from the Partnership, the Limited Partner does
not notify the General Partner of any recommended changes to such report the
Limited Partner shall have been conclusively presumed to have consented to the
filing of such report as received by it; (iii) the General Partner shall timely
file any such report along with the amount of tax shown to be due on such report
with the appropriate taxing jurisdiction and (iv) the General Partner shall
transmit a copy of any such report to the Limited Partner on the date of filing
of any such report or promptly thereafter. In the event that the Partners do not
agree on any aspect of any report described in this Paragraph 12.3, the action
to be taken with respect to such report shall be determined pursuant to the
provisions of Paragraph 10.17.
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IN WITNESS WHEREOF, the Partners have executed this Agreement as
of the date first above written.
GENERAL PARTNER:
ONCOLOGY THERAPEUTICS NETWORK
CORPORATION, a Delaware corporation
By:
------------------------------
Michael D. Goldberg,
Chief Executive Officer
LIMITED PARTNER:
BRISTOL-MYERS ONCOLOGY THERAPEUTIC
NETWORK, INC., a Delaware corporation
By:
------------------------------
Donald J. Hayden, Jr.
President
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EXECUTION COPY
SALES AGENCY AGREEMENT dated as of July 8, 1993
(this "Agreement"), between Bristol-Myers Squibb Company,
a Delaware corporation ("BMS"), and Oncology Therapeutics
Network Joint Venture, L.P., a Delaware limited
partnership ("Agent").
Preliminary Statement
BMS historically has marketed and sold its Products (as defined
below) directly to the Customer Group (as defined below). BMS and Agent believe
that the Customer Group historically has been under served by BMS and other
sellers of the Products. BMS believes that it could serve the Customer Group in
a more effective and efficient manner by engaging Agent as BMS's exclusive agent
to market and sell the Products on behalf of BMS to the Customer Group.
Accordingly, BMS and Agent hereby agree as follows:
1. Definitions.
(a) "Products" shall mean all existing and future oncology drugs
and biologics with respect to which BMS or any Controlled Affiliate of BMS has
the right to sell in the United States and which BMS or any Controlled Affiliate
of BMS chooses to sell in the United States.
(b) "Customer Group" shall mean the following customers for
Products in the United States (whether in the form of corporations, clinics,
associations, partnerships or otherwise): (i) physicians and (ii) infusion
therapy centers not located in hospitals.
(c) "Controlled Affiliate" shall mean, with respect to any
person, any corporation, partnership, joint venture, trust or unincorporated
organization in which such person has a controlling interest. For purposes of
the foregoing, "controlling" shall mean the power to direct the management and
policies, by or through stock ownership, agency or otherwise, or pursuant to or
in connection with an agreement, arrangement or understanding, of any
corporation, partnership, joint venture, trust or unincorporated organization.
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2
(d) "Axion" shall mean Axion Pharmaceuticals, Inc., a Delaware
corporation.
(e) "OTNC" shall mean Oncology Therapeutics Network Corporation,
a Delaware corporation and a wholly-owned subsidiary of Axion and the General
Partner under the Partnership Agreement.
(f) "Partnership Agreement" shall mean the Limited Partnership
Agreement dated as of July 8, 1993, between OTNC and Bristol-Myers Oncology
Therapeutic Network, Inc.
(g) "Unrelated Products" shall mean all products sold by Agent
other than the Products.
2. Effective Date. This Agreement shall become effective upon the
later of the following: (i) date that OTNC contributes all its right, title and
interest in the Oncology Therapeutics Network business to Agent pursuant to
Section 3.1(b) of the Partnership Agreement and (ii) August 23, 1993.
3. Agency; Obligations of Agent and BMS. (a) Appointment of
Agent. BMS hereby appoints Agent as the agent of BMS for soliciting, taking and
filling orders for the sale by BMS of Products; such agency shall be exclusive
with respect to the Customer Group and shall be nonexclusive with respect to
other customers. Accordingly, during the Term neither BMS nor any Controlled
Affiliate of BMS will directly solicit, take or fill orders for sales of
Products to the Customer Group (except through the agency established by this
Agreement) or appoint any other sales agent or representative to solicit, take
or fill orders for sales by BMS or any Controlled Affiliate of BMS of Products
to the Customer Group. BMS may sell the Products directly or through agents or
representatives to any customer other than members of the Customer Group
(including, without limitation, wholesalers and hospitals), some of whom may
resell Products to members of the Customer Group; provided, however, that during
the Term BMS will not appoint any other sales agent or representative to
solicit, take or fill orders for sales by BMS of the Products to small
hospitals.
(b) Agent Obligations. Agent is authorized and, during the Term
will use best efforts, on behalf of BMS to solicit, take and fill orders for the
Products from the Customer Group and to promote and market the Products to the
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3
Customer Group in a manner intended to maximize BMS sales of the Products to the
Customer Group; provided, however, that Agent shall be entitled to allocate its
efforts between sales of Products and sales of unrelated Products in a
reasonable commercial manner. Agent's obligations as BMS's agent hereunder shall
include using best efforts, consistent with Agent's business practices, to
maintain appropriate BMS inventory availability levels in local facilities, ship
Products supplied by BMS to fill orders, invoice and collect from customers
payments for the Products and remit such collections to BMS. As BMS's agent
hereunder, Agent shall act reasonably and in good faith with respect to the
Bristol-Myers Oncology Division business. Agent shall not in any manner
condition sales of the Products to any customer on such customer's purchase of
Unrelated Products sold by Agent and Agent shall not in any manner condition
sales of Unrelated Products to any customer on such customer's purchase of the
Products.
(c) Invoicing and Collections. Agent shall comply with the
following provisions in connection with invoicing customers and collecting
payments from customers on behalf of BMS hereunder:
(i) Agent shall pay to BMS or a Controlled Affiliate designated
by BMS within 60 days of the issuance of any invoice to a customer, (A)
any amounts collected from such customer for Products on behalf of BMS
pursuant to such invoice (less Commissions payable to Agent as provided
in Section 4) and (B) any amount payable by such customer pursuant to
such invoice (less Commissions payable to Agent as provided in Section
4) prior to Agent's collection of such amount from such customer. Agent
shall use best efforts, consistent with Agent's business practices, to
collect from customers payments of all invoices and Agent shall be
entitled to retain the amount collected from the applicable customer as
reimbursement to Agent for any payments made by Agent to BMS pursuant to
clause (B) above.
(ii) Notwithstanding the provisions of clause (B) of paragraph
(i) above, BMS shall retain the risk of collectibility of accounts
receivable relating to all Products sold under this Agreement. With
respect to any invoice for which Agent has not received a collection
from the customer within 180 days after the date of such invoice (an
"Uncollected Invoice"),
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4
(A) Agent shall turn over to BMS for collection the Uncollected Invoice
and (B) BMS shall refund to Agent (I) the amount of the Uncollected
Invoice that was previously paid by Agent to BMS pursuant to clause (B)
of paragraph (i) above plus (II) 120 days' interest on the amount
specified in (I) at an annual rate of 12% or, if lower, the maximum rate
allowed by law.
(iii) Promptly following the end of each calendar quarter, Agent
shall provide BMS with a statement in reasonable detail setting forth
(A) the amounts of returns and allowances during such quarter relating
to sales of Products pursuant to this Agreement, (B) the percentage of
sales of Products pursuant to this Agreement that such returns and
allowances represented during such quarter and (C) if the percentage
referred to in clause (B) above is greater than 1%, reasonable support
or documentation as to the cause of all such returns and allowances.
Promptly following the delivery of such statement, Agent shall reimburse
BMS for all such returns and allowances that were due to the fault of
Agent (for example, due to shipments in error).
(iv) For purposes of this Agreement, Agent shall use the
following procedures in matching payments received from customers to
invoices relating to sales of Products hereunder: with respect to any
payment received from a customer, if more than one invoice is
outstanding with respect to such customer's account, Agent shall use
reasonable efforts to match invoices to applicable customer payments. If
after such efforts Agent is unable to match any payment to a particular
invoice, Agent shall apply the "first-in, first-out" principle in
determining the invoice to which such payment applies. One or more
invoices issued on the same date shall be aggregated and treated as a
single invoice for purposes of this paragraph. With respect to any
partial payment received from a customer applicable to an invoice that
covers both Products shipped pursuant to this Agreement and Unrelated
Products, such payment shall be allocated between the Products and
Unrelated Products on a pro rata basis based on the aggregate price of
the Products and the aggregate price of the Unrelated Products covered
by such invoice.
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5
(d) Reports. Agent shall provide BMS with such periodic reports
relating to Product sales, invoices outstanding, collections, BMS inventories
and other matters relevant to this Agreement as BMS shall reasonably request
from time to time.
(e) Access to Information. Agent shall furnish or cause to be
furnished to a mutually agreeable BMS selected independent certified public
accountant access, during normal business hours, to such information (including
all relevant books and records of Agent) as reasonably requested by BMS relating
to Agent's activities under this Agreement. Furthermore, BMS shall have the
right (through such accountant) to review and audit such information (including
all relevant books and records of Agent) to its satisfaction. Such accountant
shall be bound in confidence to disclose only noncompliance with the terms of
this Agreement.
(f) Sales Tax. Agent shall comply with the following provisions
in connection with any Applicable Sales Tax that arise in connection with the
sale by BMS of Products to the Customer Group pursuant to this Agreement. On
behalf of BMS, Agent shall (i) collect Applicable Sales Tax on behalf of BMS
from customers of Products; (ii) separately set forth any Applicable Sales Tax
on invoices issued to customers of Products; (iii) separately designate as
"Sales Tax" any Applicable Sales Tax amounts remitted to BMS pursuant to Section
3(c); (iv) provide BMS, attention of Stanley I. Paul or any other person
designated by BMS, with reports by the tenth (10) business day after the close
of each calendar month that set forth with respect to amounts invoiced in such
month (a) the amount invoiced to customers excluding Applicable Sales Tax and
(b) the amount of Applicable Sales Tax invoiced, in each case for each state and
local taxing jurisdiction for which there is an Applicable Sales Tax. For
purposes of this Section, the term "Applicable Sales Tax" means any sales tax
(a) that is (x) imposed by a state or local jurisdiction in the United States or
any other jurisdiction and (y) designated in a written notice by BMS to Agent
from time to time or (b) imposed by a jurisdiction not designated by BMS and for
which Agent is aware that a sales tax applies. BMS shall indemnify, hold
harmless, and defend Agent from any and all liability, loss, claims, lawsuits,
damages, injury, settlements, reasonable costs and expenses whatsoever (as
incurred), including, without limitation, reasonable attorneys' fees and court
costs, (collectively
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6
"Liabilities") with respect to sales taxes that arise in connection with the
sale by BMS of Products pursuant to this Agreement; provided, however, that
Agent shall not be entitled to any such indemnification or other action by BMS
with respect to any portion of such Liabilities that arise as a resuLt of the
failure by Agent to comply with the provisions of this Agreement.
4. Commissions; Commission Adjustment. (a) Commissions. Agent
will be entitled to a commission on amounts invoiced (less rebates and discounts
reflected on such invoice) by Agent with respect to sales of Products by BMS
hereunder (the "Commission"). The Commission shall be one half of one percent
(.5%) prior to January 1, 1994, and two percent (2%) on and after January 1,
1994. Agent will be entitled to withhold the applicable Commission from amounts
paid by Agent to BMS with respect to customer invoices pursuant to paragraph (i)
of Section 3(c).
(b) Commission Adjustment. At any time on or after January 1,
1995 and prior to the termination of the Term, at Agent's request, BMS will
discuss with Agent reasonably and in good faith increases in the Commission
based upon the following factors: (i) Agent's cost of performing the services
contemplated by this Agreement, (ii) the profitability of Agent (ie., the extent
to which the Agent's profits are insufficient to cover the preference amounts
allocable to OTNC under the Partnership Agreement) and (iii) the extent to which
Agent's services under this Agreement have improved BMS's effectiveness,
efficiency or profitability in serving the Customer Group; provided, however,
that the Commission shall never exceed four percent (4%). If BMS and Agent shall
agree in writing to increase the Commission, such Commission shall be payable
with respect to all invoices issued after the date of such agreement.
5. Term of Agreement. The term of this Agreement shall commence
on the Effective Date and shall continue until August 22, 2013, unless
terminated earlier pursuant to Section 8 below (such term, without giving effect
to any extension pursuant to Section 8(c), is referred to herein as the "Term").
6. Promotion; Product Supply. (a) Promotion. BMS, through its
Bristol Laboratories Oncology sales force or any successor thereto, will use
best efforts to market and promote the Products to the Customer Group and to
market
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7
and promote Agent's services hereunder during the Term. Consistent with BMS's
business practices, BMS shall provide Agent with all necessary marketing
materials and support associated with the Products, including, without
limitation, customer lists for the Customer Group and small hospitals. Without
limiting Section 3 of this Agreement, the use of such marketing materials and
support associated with the Products by Agent (including, without limitation,
customer lists contributed by the Limited Partner to the Partnership (as such
terms are defined in the Partnership Agreement)) shall be nonexclusive.
(b) Source; Quantity. During the Term Agent shall make BMS the
exclusive source of Products for all orders for Products solicited or received
by Agent and shall not purchase Products from any source or fill orders of
customers with Products from any other source, except (i) to the extent that
Agent's requirements (meaning the amounts of Products in inventory maintained by
Agent or requested by Agent for or in anticipation of orders solicited by Agent
on behalf of BMS) are not provided by BMS at times and in amounts reasonably
required to maintain such BMS inventories at reasonably adequate levels or (ii)
if any Product supplied by BMS is economically or otherwise not competitive with
the same Product available for supply to Agent from other sources (it being
understood, however, that the provisions of this Agreement with respect to
payment of Commissions and BMS's responsibility for collection of accounts
receivable shall not apply to Products obtained by Agent from other sources).
(c) Availability. BMS shall use best efforts, consistent with
BMS's businesses practices, to supply the Products and maintain BMS inventory
levels in accordance with Agent's requirements (as defined in paragraph (b)
above).
(d) Price and Trade Terms; Price Changes. BMS retains all rights
to control the price and all other terms and conditions with respect to sales to
customers of the Products and will establish and maintain such prices, terms and
conditions in its sole discretion. In accordance with BMS business practices,
BMS shall maintain a published list of prices, terms and other conditions for
sales of Products (which may specify prices, terms and conditions by customer
group) (the "Price List"); provided, however, that BMS's published prices, terms
and other conditions for direct sales to the Customer Group pursuant to this
Agreement shall
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8
at all times be no less favorable than BMS's published prices, terms and other
conditions for sales to other customers that are able to resell Products to the
Customer Group. Agent shall quote and offer prices and other terms and
conditions for the Products to customers on BMS's behalf in accordance with the
Price List. BMS may change the Price List from time to time in its sole
discretion in accordance with BMS's business practices. BMS shall give Agent
reasonable notice (but not less than ten business days) of the Price List and
any changes thereto.
(e) Product Manufacture. BMS retains the right to control every
aspect of Product manufacture and formulation and nothing in this Agreement
shall be deemed to limit BMS's right to (i) discontinue production of any
Product, (ii) introduce a new Product, (iii) reformulate any Product or (iv)
change or alter the formulation, design, packaging or labelling of any Product.
BMS, in its sole discretion, may, but shall not be required to, recall any of
the Products in the inventory maintained by Agent in order to perform the
reformulation, change or alteration described in (iii) or (iv) above. BMS shall
give Agent reasonable notice of any event described in (i), (ii), (iii) or (iv)
above.
(f) All references in this Agreement to BMS's business practices
shall mean BMS's current business practices as they may be reasonably changed by
BMS from time to time during the Term and the Extended Term, if any.
7. Title, Product Shipment and Delivery. (a) Title. Title and
risk of loss with respect to Products shall remain with BMS until transferred to
the ultimate customer and will never vest in Agent.
(b) Shipping/Delivery. BMS shall be responsible for shipping
Products to inventory sites maintained by Agent on behalf of BMS hereunder and
shall pre-pay freight and insurance and arrange for delivery for such shipments
in accordance with BMS's business practices subject to the following: except for
Products requiring special handling (for example, refrigeration), BMS shall use
best efforts to arrange for delivery of all Products via normal common carrier,
U.P.S. or Parcel Post Service within three business days of BMS's receipt of the
inventory order from Agent, or if later delivery is requested, on the date
requested. BMS shall arrange for delivery of a Product requiring special
handling within a period no greater than is reasonably
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9
necessary to accommodate the special handling required for such Product. BMS
will also use best efforts to fill any request for expedited delivery as
requested by Agent. Agent shall ship Products from such inventory sites to
customers on behalf of BMS hereunder and shall pay all costs associated with
such shipments (including freight and insurance).
(c) Return Goods Policy. BMS will accept returns from customers,
make adjustments, provide refunds and pay shipping costs of defective or
nonconforming Products according to BMS business practices. All such returned
Product is to be handled by Agent on BMS's behalf according to BMS's business
practices. Costs of refunds and other costs relating to the foregoing shall be
for BMS's account.
(d) Damages, Shortages, Errors. Upon Agent's receipt of any
inventory maintained by Agent hereunder, Agent shall inspect every shipment from
BMS for Product defects or deficiencies according to BMS business practices.
Agent shall give BMS prompt notice of any such defects or deficiencies as
discovered.
(e) Guarantee. In connection with sales of Products pursuant to
this Agreement, BMS shall guarantee that such Products comply with the Federal
Food, Drug and Cosmetic Act in accordance with BMS's business practices.
8. Termination. (a) If, prior to the expiration of the Term
specified in Section 5, the Partnership Agreement terminates under circumstances
that do not involve the termination of this Agreement pursuant to paragraph (b)
below, then BMS may elect to terminate this Agreement upon at least 60 days
prior written notice to Agent.
(b) This Agreement may at any time be terminated as follows:
(1) In the event of a material breach of this Agreement by either
party, the other party shall have the right to deliver a written notice
of termination to the defaulting party (a "Default Notice"). In the
event of a material breach of the Partnership Agreement by the Partner
affiliated with either party (for this purpose only, OTNC will be deemed
affiliated with Agent and not with BMS), the other party shall have the
right to deliver a written notice of termination to the party affiliated
with the defaulting Partner (a "Default
<PAGE>
<PAGE>
10
Notice"). In the event of a material breach under the Trademark License
Agreement by the Partnership BMS shall have the right to deliver a
written notice of termination to Agent (a "Default Notice"). In the
event any such breach is not cured within 60 days after service of the
Default Notice (or 30 days in the case of nonpayment), this Agreement
shall automatically terminate.
(2) By either party, by written notice to the other party, if the
other party (provided that in the case of Agent, BMS may terminate if
any such event occurs with respect to Agent, OTNC or Axion) shall (i)
voluntarily commence any proceeding or file any petition seeking relief
under Title 11 of the United States Code or any other Federal, state
bankruptcy, insolvency, liquidation, receivership or similar law (a
"Bankruptcy Law"), (ii) consent to the institution of, or fail to
contravene in a timely and appropriate manner, any such proceeding or
the filing of any such petition, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator or similar
official for such party or for a substantial part of its property or
assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general
assignment for the benefit of creditors, (vi) become insolvent or admit
in writing that it is insolvent, (vii) take corporate action for the
purpose of effecting any of the foregoing or (viii) be subject to the
commencement of any involuntary proceeding or the filing of any
involuntary petition in a court of competent jurisdiction seeking (A)
relief in respect of such party or of a substantial part of its property
or assets under any Bankruptcy Law, (B) the appointment of a receiver,
trustee, custodian, sequestrator or similar official for such party or
for a substantial part of its property or assets or (C) the winding-up
or liquidation of such party; and in the case of this clause (viii) such
proceeding or petition shall continue undismissed for 120 days or an
order or decree approving or ordering any of the foregoing shall
continue unstayed and in effect for 60 days. In addition, either party,
by written notice to the other party, may terminate this Agreement if
the Partnership Agreement is terminated under Section 2.1(b) thereof on
account of any event described therein provided that (i) BMS may
terminate only if any such event occurs
<PAGE>
<PAGE>
11
with respect to OTNC and (ii) Agent may terminate only if any such event
occurs with respect to the Limited Partner (as defined in the
Partnership Agreement).
(3) By BMS, if there shall occur a Change in Control (as defined
below) with respect to Axion. For purposes of this Agreement, "Change in
Control" with respect to any person shall mean the sale or other
transfer, directly or indirectly, of such person or substantially all
the assets and business of such person or a controlling interest (as
defined in Section l(c)) therein (including, without limitation, by
operation of law or in connection with a merger, sale of stock, sale of
assets or similar transaction). Any such termination by BMS shall be
effected by written notice to Agent, which notice shall be given by BMS
within 20 days following notice by Agent to BMS of Axion's intent to
effect any such transaction or, if such notice is not given by Agent to
BMS, within 20 days following the later of (A) the consummation of such
transaction and (B) the date BMS first obtains knowledge of such
consummation. Any such termination shall be effective upon the later of
(x) 60 days following the date of BMS's notice of termination and (y)
the consummation of such transaction.
(4) By BMS, effective as of January 1, 2003 or January 1, 2008
only, upon written notice by BMS to Agent of BMS's election to terminate
this Agreement pursuant to this Section 8(b)(4), which notice shall be
given at least one year prior to the relevant termination date.
(c) Notwithstanding the provisions of Sections 8(a) and B(b): (i)
if this Agreement is terminated under Section 8(b)(1) or Section 8(b)(2), then
each party may elect to cause this Agreement to be extended for a new term (an
"Extended Term") of up to two years (in the case of such election by the
terminating party) or up to 60 days (in the case of such election by the
nonterminating party), in each case from the date of the expiration of the Term;
(ii) if this Agreement is terminated under Sections 8(a) or 8(b)(3) or upon the
expiration of the Term specified in Section 5, then each party may elect to
cause this Agreement to be extended for an Extended Term of up to two years from
the date of the expiration of the Term; and (iii) if this Agreement is
terminated under Section 8(b)(4), then this Agreement shall continue for an
Extended Term until June 30,
<PAGE>
<PAGE>
12
2013. Any election by a party to extend this Agreement as described above shall
be made by written notice to the other party within 30 days following the date
the relevant notice of termination of the Term is first given (or, in the case
of the expiration of the Term specified in Section 5, between 90 and 120 days
prior to such expiration), and if both parties elect to extend this Agreement,
then the Extended Term shall be for the longer of the periods elected by the
parties. If this Agreement is extended as described above, then during the
Extended Term, the agency granted to Agent pursuant to Section 3(a) shall be
nonexclusive with respect to all customers, including the Customer Group. OTNC
or Axion may make any election referred to in this paragraph (c) and/or provide
any notice referred to in paragraph (b) above on behalf of Agent.
(d) Upon the termination of this Agreement for any reason, the
parties shall cooperate to effect the transfer to BMS or BMS's designee of the
responsibilities of Agent hereunder (including, without limitation, the transfer
by Agent to BMS or BMS's designee of inventories of Products and accounts
receivable).
(e) Upon termination of this Agreement for any reason, Agent
shall provide BMS with originals or copies of all account and business
information, including, without limitation, (i) customer lists, (ii) account
records, (iii) account balances, (iv) current inventory levels and (v) other
records or information relating to the business conducted under this Agreement
that BMS may request.
(f) Remedies for breach, obligations to make payments (for
Products shipped prior to termination) and Sections 10 through 20 shall survive
termination.
(g) Notwithstanding any other provision of this Agreement, BMS
shall not be liable to Agent, and shall not be deemed to be in default
hereunder, for the failure to supply Products pursuant to this Agreement if such
failure is a result of a labor dispute, natural disaster, or any other event
which is beyond the reasonable control of BMS.
9. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable, directly or indirectly, by
BMS or Agent (in the case of Agent, including, without limitation, by operation
of law or in connection with a merger, sale of stock, or sale of substantially
all the assets of or similar
<PAGE>
<PAGE>
13
transaction with respect to Agent or OTNC) without the prior written consent of
the other party which may be withheld in such party's sole discretion. Without
limiting the generality of the foregoing, except for a Permitted Transfer
pursuant to the Partnership Agreement, a Change in Control (as defined in
Section 8(b)(3)) of either Agent or OTNC (but not of Axion) shall be deemed to
constitute an assignment of this Agreement by Agent that shall require BMS's
consent pursuant to this Section 9; provided, however, that a Change in Control
of Axion shall not constitute a Change in Control of Agent or OTNC for purposes
of this Section 9. Notwithstanding the foregoing, if this Agreement is extended
pursuant to Section 8(c) and the Partnership Interest (as defined in the
Partnership Agreement) of the Limited Partner is purchased pursuant to Section
2.2(a) of the Partnership Agreement, this Agreement may be assigned by Agent to
Axion or a Controlled Affiliate of Axion or if there is an extension of the Term
pursuant to Section 8(b)(3), this Agreement may be assigned to the successor of
Axion or to the entity that controls Axion. OTNC or Axion may affect such
assignment on behalf of Agent.
10. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally or sent by
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail (return receipt requested) or reputable overnight
courier service and shall be deemed given when so delivered by hand, telexed,
cabled or telecopied, or if mailed, three days after mailing (one business day
in the case of express mail or overnight courier service) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(i) if to Agent,
In care of:
Axion Pharmaceuticals, Inc.
395 Oyster Point Blvd.
Suite 405
South San Francisco, CA 94080
Tel: (415) 952-8400
Fax: (415) 952-5675
Attention: Michael D. Goldberg
<PAGE>
<PAGE>
14
with a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Tel: (415) 424-0160
Fax: (415) 496-2733
Attention: Robert V. Gunderson, Jr.
(ii) if to BMS,
Bristol-Myers Squibb Company
P.O. Box 4500
Princeton, NJ 08543
Tel: (609) 897-2234; (609) 897-2148
Fax: (609) 897-6078; (609) 897-6055
Attention: David T. Bonk, Esq.;
Brian A. Markison
with copies to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019-7415
Tel: (212) 474-1160
Fax: (212) 474-3700
Attention: W. Clayton Johnson, Esq.
11. Indemnification. (a) BMS shall indemnify, hold harmless, and
defend Agent from any and all liability, loss, claims, lawsuits, damages,
injury, settlements, costs and expenses whatsoever (as incurred), including but
not limited to attorneys' fees and court costs, arising out of (i) the Products
or the manufacture or use thereof or (to the extent relevant to infringement,
product liability or similar claims) distribution thereof, (ii) any breach by
BMS of any term, covenant or condition contained in this Agreement or (iii) any
gross negligence or wilful misconduct by BMS in the performance of its
obligations under this Agreement.
(b) Agent shall indemnify, hold harmless, and defend BMS from any
and all liability, loss, claims, lawsuits, damages, injury, settlements, costs
and expenses
<PAGE>
<PAGE>
15
whatsoever (as incurred), including but not limited to attorneys' fees and court
costs, arising out of (i) any breach by Agent of any term, covenant or condition
contained in this Agreement or (ii) any gross negligence or wilful misconduct
by Agent in the performance of its obligations under this Agreement.
12. No Third Party Beneficiary. Except for Sections 8 and 9 of
which Axion and OTNC are third party beneficiaries, none of the provisions
herein contained are intended by the parties, nor shall they be deemed, to
confer any benefit on any person not a party to this Agreement.
13. Governing Law. This Agreement shall be construed and governed
by the laws of the State of New York without regard to the conflicts provisions
thereof.
14. No Partnership Relation. The parties hereto intend that no
partnership, joint venture or similar relationship be created pursuant to this
Agreement.
15. Nonwaiver. The waiver by a party of any breach by the other
party of any term, covenant or condition contained herein shall not be deemed to
be a waiver of any subsequent breach by the other party of the same or any other
term, covenant or condition contained in this Agreement. The subsequent
acceptance of performance hereunder by a party shall not be deemed to be a
waiver of any preceding breach by the other party of any term, covenant, or
condition of this Agreement, other than the failure of such party to perform the
particular duties so accepted, regardless of such party's knowledge of such
preceding breach at the time of acceptance of such performance.
16. Additional Documents. Each of the parties hereto agrees to
execute any document or documents that may be reasonably requested from time to
time by the other party to implement or complete such party's rights or
obligations pursuant to this Agreement.
17. Entire Agreement; Modification; Severability. Other than the
Partnership Agreement, there are no other agreements or understandings, written
or oral, between the parties, regarding this Agreement. This Agreement shall not
be modified or amended except by a written document executed by both parties to
this Agreement, and such written (modifications) shall be attached to this
Agreement.
<PAGE>
<PAGE>
16
Notwithstanding the foregoing, even if signed by the parties, the terms of any
order, confirmation or similar document shall not amend or add to the terms of
this Agreement and, except for requested quantities and delivery dates, will
have no effect. If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any Law or public policy, all other
terms and provisions of this Agreement shall nevertheless remain in full force
and effect so long as the economic or legal substance of the transactions hereby
is not affected in any manner materially adverse to any party. The parties shall
endeavor in good-faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect of which
between the parties comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
18. Authorization. All corporate action on the part of each party
hereto necessary for the authorization, execution and delivery of this
Agreement and the performance of all obligations hereunder has been taken. The
persons executing this Agreement have due power and authority to so execute this
Agreement.
19. Paragraph Headings. The paragraph headings set forth herein
are for purposes of convenience only, and shall have no bearing whatsoever on
the actual content of this Agreement.
<PAGE>
<PAGE>
17
20. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all of such counterparts
shall together constitute one and the same agreement.
IN WITNESS THEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first written above.
BRISTOL-MYERS SQUIBB COMPANY,
by
--------------------------
Name: Kenneth E. Weg
Title: President- Bristol-Myers
Squibb Pharmaceutical
Group
ONCOLOGY THERAPEUTICS NETWORK JOINT
VENTURE, L.P.,
by ONCOLOGY THERAPEUTICS NETWORK
CORPORATION, Its General Partner,
by
--------------------------
Michael D. Goldberg
Chief Executive Officer
<PAGE>
<PAGE>
EXECUTION COPY
TRADEMARK LICENSE AGREEMENT dated as of July 8,
1993 (this "Agreement"), between Bristol-Myers Squibb
Company, a Delaware corporation ("Licensor") and Oncology
Therapeutics Network Joint Venture L.P., a Delaware
limited partnership ("Licensee").
Preliminary Statement
Licensor is the owner of certain trademarks in the United States
and Licensee wishes to have the nonexclusive right to use such trademarks in
connection with the Sales Agency Agreement dated as of July 8, 1993, between
Licensor and Licensee (the "Sales Agency Agreement").
Accordingly, in consideration of the mutual promises contained
herein and in the Sales Agency Agreement, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto agree as follows:
1. License. Licensor hereby grants to Licensee a nonexclusive,
royalty free, license to use the tradenames listed on Schedule 1 and the
trademarks listed on Schedule 2 (collectively, the "Trademarks") in the United
States for the Term (as defined below) in accordance with the terms of this
Agreement; provided, however, that Licensor shall have the right to (A) upon
180-days' written notice to Licensee or, with respect to Schedule 2, such
shorter notice as may be reasonable under the circumstances, make any additions
to, or deletions from, the Trademarks (provided that deletion of any Trademark
listed on Schedule 2 will occur only if Licensor ceases selling the relevant
Product pursuant to the Sales Agency Agreement or if Licensor ceases using such
Trademark in connection with the relevant Product) and (B) approve the manner in
which Licensee uses the Trademarks as provided in Sections 4 and 10.
2. Effective Date. This Agreement shall become effective on the
Effective Date of the Sales Agency Agreement.
3. Term of Agreement. The term of this Agreement shall commence
on the Effective Date and shall continue for the Term of the Sales Agency
Agreement including any Extended Term thereof (the "Term").
<PAGE>
<PAGE>
2
4. Use of Trademarks. Unless approved otherwise by Licensor,
Licensee shall use the Trademarks only in accordance with the standards and
guidelines communicated by Licensor to Licensee from time to time, provided that
Licensor shall give Licensee reasonable notice of such standards and guidelines
and any changes thereto. Such standards and guidelines will be consistent with
the internal standards and guidelines for the Trademarks used and complied with
by Licensor. Unless the standards and guidelines provide that no prior approval
is required, the forms of all written materials that contain or reflect any
Trademark (including, without limitation, labels, packaging and scripts prepared
for oral communications), and the use of any Trademark in conjunction with any
other trademark, shall be subject to Licensor's prior approval, which approval
shall not be unreasonably withheld; provided that Licensor agrees that failure
to respond to any such request for approval within 15 days following such
request shall be deemed an approval by Licensor; and provided, further, that in
the case of routine communications made in the ordinary course of business,
Licensor agrees that prior approval is not necessary if such communications
comply with the standards and guidelines described above and that if no
standards or guidelines have been communicated by Licensor to Licensee, Licensee
may make such communications without Licensor's prior approval. If such
communications concern representations about Products, including Product
indications or efficacy, or other representations that are subject to Food and
Drug Administration regulations but excluding packaging inserts or other
information provided by Licensor to Licensee or previously approved by Licensor,
Licensor's approval shall be within one month following Licensee's request.
Licensee shall provide Licensor with samples of use of the Trademarks upon
Licensor's reasonable request therefor.
5. Promotion of BMS. During the Term of the Sales Agency
Agreement without regard to any Extended Term thereof, Licensee will promote the
names "Bristol-Myers Squibb Company" and/or "Bristol-Myers Oncology Division"
and Licensor's involvement in the business of Licensee. Such promotion shall
include, without limitation, including the "Bristol-Myers Squibb Company" and/or
"Bristol-Myers Oncology Division" names in marketing and promotional materials.
The manner in which Licensee uses the "Bristol-Myers Squibb Company" and/or
"Bristol-Myers Oncology Division" names in such materials shall be subject to
Section 4 above. Notwithstanding the foregoing, promotion
<PAGE>
<PAGE>
3
of the names "Bristol-Myers Squibb Company" and/or "Bristol-Myers Oncology
Division" and promotion of Licensor's involvement in the business of Licensee
shall terminate if Licensor terminates this License with respect to the
tradenames listed on Schedule 1 as contemplated by Section 1.
6. Ownership of Trademarks. Except as expressly provided under
this Agreement, Licensee shall have no rights in or to the Trademarks and shall
not during the Term nor thereafter represent that it is the owner of the
Trademarks, whether or not the Trademarks are registered. Licensee shall not
dispute the validity or ownership of the Trademarks.
7. Cooperation; Additional Documents. Licensee shall cooperate
with Licensor in executing all documents necessary or reasonably requested by
Licensor to protect Licensor's rights in the Trademarks. Each of the parties
agrees to execute any document or documents that may be reasonably requested
from time to time by the other party to implement or complete such party's
rights or obligations pursuant to this Agreement.
8. Termination. (a) This Agreement shall automatically terminate
upon the expiration or termination of the Term of the Sales Agency Agreement
(including any Extended Term thereof).
(b) In the event of a material breach of this Agreement by either
party, the other party shall have the right to deliver a written notice of
termination to the defaulting party. In the event such breach is not cured
within 60 days after service of such notice, this Agreement shall automatically
terminate.
(c) Upon termination of this Agreement, Licensee shall
discontinue any and all use of the Trademarks.
9. Infringement. Licensee shall report to Licensor any
unauthorized use of the Trademarks of which Licensee becomes aware and shall
cooperate reasonably with Licensor, at Licensor's expense, in connection with
Licensor's efforts to protect its rights in and to the Trademarks to the extent
the need for such protection arises in connection with Licensee's use of the
Trademarks pursuant to this Agreement. Licensee shall not institute any
<PAGE>
<PAGE>
4
protective action with respect to the Trademarks without Licensor's specific
written authorization.
10. Quality Control. Licensee shall adhere strictly to the
quality control procedures furnished by Licensor to Licensee from time to time,
provided that Licensor shall give Licensee reasonable notice of such quality
control procedures and any changes thereto. Such quality control procedures will
be consistent with the internal quality control procedures for the Trademarks
used and complied with by Licensor. Licensee shall provide Licensor with such
periodic reports relating to the Trademarks, the Products and other matters
relevant to this Agreement as Licensor shall reasonably request from time to
time. Licensor shall have the right at any time during normal business hours
upon reasonable notice to inspect Products held by Licensee and written
materials referred to in Section 4, wherever located, to ensure compliance with
the terms and obligations of this Agreement.
11. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable, directly or indirectly, by
Licensor (other than to a subsidiary of Licensor) or Licensee (in the case of
Licensee, including, without limitation, by operation of law or in connection
with a merger, sale of stock, or sale of substantially all the assets of or
similar transaction with respect to Licensee or OTNC) without the prior written
consent of the other party which may be withheld in such party's sole
discretion. Notwithstanding the foregoing, this Agreement may be assigned or
transferred by Licensee to any permitted assignee or transferee of the Agent
under, and in the same manner as, the Sales Agency Agreement. If the Sales
Agency Agreement is assigned pursuant to Section 9 of that agreement, this
Agreement shall be assigned to the assignee of the Sales Agency Agreement.
12. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given when delivered personally or sent by
prepaid telex, cable or telecopy, or sent, postage prepaid, by registered,
certified or express mail (return receipt requested) or reputable overnight
courier service and shall be deemed given when so delivered by hand, telexed,
cabled or telecopied, or if mailed, three days after mailing (one business day
in the case of express mail or overnight courier service) to the
<PAGE>
<PAGE>
5
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to Licensee,
In care of:
Axion Pharmaceuticals, Inc.
395 Oyster Point Blvd.
Suite 405
South San Francisco, CA 94080
Tel: (415) 952-8400
Fax: (415) 952-5675
Attention: Michael D. Goldberg
with a copy to:
Brobeck, Phleger & Harrison
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Tel: (415) 424-0160
Fax: (415) 496-2733
Attention: Robert V. Gunderson, Jr., Esq.
(ii) if to Licensor,
In care of:
Bristol-Myers Squibb Company
P.O. Box 4500
Princeton, NJ 08543
Tel: (609) 897-2234; (609) 897-2148
Fax: (609) 897-6078; (609) 897-6055
Attention: David T. Bonk, Esq.;
Brian A. Markison
with copies to:
Cravath, Swaine & Moore
825 Eighth Avenue
New York, NY 10019-7415
Tel: (212) 474-1160
Fax: (212) 474-3700
Attention: W. Clayton Johnson, Esq.
<PAGE>
<PAGE>
6
13. Indemnification. (a) Licensor shall indemnify, hold harmless,
and defend Licensee from any and all liability, loss, claims, lawsuits, damages,
injury, settlements, costs and expenses whatsoever (as incurred), including but
not limited to attorneys' fees and court costs, arising out of any Trademark or
the use thereof in accordance with this Agreement.
14. Attorney Fees. Should any litigation be commenced concerning
this Agreement or the rights and duties of any party with respect to it, the
party prevailing shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum for such party's attorney fees and expenses
determined by the court in such litigation or in a separate action brought for
that purpose.
15. Axion Tradenames and Trademarks. Nothing in this Agreement
shall affect Axion Pharmaceutical Inc.'s or any of its affiliate's rights in
their tradenames and trademarks.
16. No Third Party Beneficiary. None of the provisions herein
contained are intended by the parties, nor shall they be deemed, to confer any
benefit on any person not a party to this Agreement.
17. Governing Law. This Agreement shall be construed and governed
by the laws of the State of New York without regard to the conflicts provisions
thereof.
18. Nonwaiver. The waiver by a party of any breach by the other
party of any term, covenant or condition contained herein shall not be deemed to
be a waiver of any subsequent breach by the other party of the same or any other
term, covenant or condition contained in this Agreement. The subsequent
acceptance of performance hereunder by a party shall not be deemed to be a
waiver of any preceding breach by the other party of any term, covenant, or
condition of this Agreement, other than the failure of such party to perform the
particular duties so accepted, regardless of such party's knowledge of such
preceding breach at the time of acceptance of such performance.
19. Entire Agreement; Modification; Severability. Other than the
Partnership Agreement and the Sales Agency Agreement, there are no other
agreements or understandings, written or oral, between the parties, regarding
this
<PAGE>
<PAGE>
7
Agreement. This Agreement shall not be modified or amended except by a written
document executed by both parties to this Agreement, and such written
modifications shall be attached to this Agreement. If any term or other
provision of this Agreement is invalid, illegal or incapable of being enforced
by any Law or public policy, all other terms and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions hereby is not affected in any manner
materially adverse to any party. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which between the parties comes as close
as possible to that of the invalid, illegal or unenforceable provisions.
20. Authorization. All corporate action on the part of each party
hereto necessary for the authorization, execution and delivery of this Agreement
and the performance of all obligations hereunder has been taken. The persons
executing this Agreement have due power and authority to so execute this
Agreement.
21. Paragraph Headings. The paragraph headings set forth herein
are for purposes of convenience only, and shall have no bearing whatsoever on
the actual content of this Agreement.
<PAGE>
<PAGE>
8
22. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, and all of such counterparts
shall together constitute one and the same agreement.
IN WITNESS THEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first written above.
BRISTOL-MYERS SQUIBB COMPANY,
by
--------------------------
Name: Kenneth E. Weg
Title: President-Bristol-Myers
Squibb Pharmaceutical
Group
ONCOLOGY THERAPEUTICS NETWORK JOINT
VENTURE, L.P.,
by ONCOLOGY THERAPEUTICS NETWORK
CORPORATION, Its General Partner,
by
--------------------------
Michael D. Goldberg
Chief Executive Officer
<PAGE>
